Can a 20 percent up or down walk return to start
Question
Each day an asset's price is multiplied by either or , each with probability , independently of other days. What is the probability that after days the price equals its starting value?
Short answer
0. With up-days the price ratio is . The numerator has no factor of , so the ratio can never equal for any ; the event is impossible.
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Open the worked solutionLessons behind this question
- Conditional Probability, Total Probability, and Bayes' Rule
- Worked Examples — Probability Trees, Monty Hall, and Bayesian Updating
- Sample Spaces, Events, and the Probability Axioms
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