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Mathematics, 05.08.2020 03:01 alexandergoetz8239
We want to model the daily movement of a particular stock (say Amazon, ticker = AMZN) using a homogeneous markov-chain. Suppose at the close of the market each day, the stock can end up higher or lower than the previous day’s close. Assume that if the stock closes higher on a day, the probability that it closes higher the next day is .65. If the stock closes lower on a day, the probability that it closes higher the next day is .45.
(a) What is the 1-step transition matrix? (Let 1 = higher, 2 = lower)
(b) On Monday, the stock closed higher. What is the probability that it will close higher on Thursday (three days later)
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We want to model the daily movement of a particular stock (say Amazon, ticker = AMZN) using a homoge...
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