JackSwan

02-08-2010, 03:16 AM

(Random Walk) A stock has the value of 100 on day 0. Each day, the value changes randomly either

one unit upwards with probability 2/3 or two units downwards with probability 1/3. The daily changes are

independent.

a) Compute the probability that, after 50 days, the value > 110.

b) Compute the probability that, after 200 days, the value > 110.

c) Compute the probability that, after 200 days, the value < 90.

I know I should apply central limit theorem to this, but how do I do it?

I've calculated:

Expected value = 0

and

Variance = 2

Can anyone please help out?

one unit upwards with probability 2/3 or two units downwards with probability 1/3. The daily changes are

independent.

a) Compute the probability that, after 50 days, the value > 110.

b) Compute the probability that, after 200 days, the value > 110.

c) Compute the probability that, after 200 days, the value < 90.

I know I should apply central limit theorem to this, but how do I do it?

I've calculated:

Expected value = 0

and

Variance = 2

Can anyone please help out?