Consider the following simple model for daily changes in price of a stock. Suppose that on each day
Question: Consider the following simple model for daily changes in price of a stock. Suppose that on each day the price either goes up 1 with probability 0.6 or goes down 1 with probability 0.4. Suppose the price at the beginning of day 1 is 200. Let X denote the price at the end of day 100. That is, we define random variables
\({{X}_{1}},{{X}_{2}},...,{{X}_{100}}\) such that
\[X=200+\sum\limits_{i=1}^{100}{{{X}_{i}}}\](a) Determine E[Xi] and Var(Xi).
(b) Use the central limit theorem to approximate IP(X > 220).
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Solution Format: Word Document
Solution Format: Word Document
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