Problem 4.1 (10 points) The unit price of a certain commodity evolves randomly from day to...
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Problem 4.1 (10 points) The unit price of a certain commodity evolves randomly from day to day with a general downward drift but with an occasional upward jump when some unforeseen event excites the markets. Long term records suggest that, independently of the past, the daily price increases by a dollar with probability 0.45, declines by 2 dollars with probability 0.5, but jumps up to 10 dollars with probability 0.05. Let Co denote the price today and Cn the price n days into the future. How does the probability P[C Co] behave as no? Problem 4.1 (10 points) The unit price of a certain commodity evolves randomly from day to day with a general downward drift but with an occasional upward jump when some unforeseen event excites the markets. Long term records suggest that, independently of the past, the daily price increases by a dollar with probability 0.45, declines by 2 dollars with probability 0.5, but jumps up to 10 dollars with probability 0.05. Let Co denote the price today and Cn the price n days into the future. How does the probability P[C Co] behave as no?
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