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CT4 Sept 2008 Q 11 part (vi) IFoA

R

Rajat gupta

Ton up Member
Hi All,

Can somebody please explain the above question. I am not getting the solution to this question from the revision notes. Any help will be highly appreciated.

Regards,
Rajat
 
Rajat gupta said:
Hi All,

Can somebody please explain the above question.
Click to expand...

For any given state, there are only two possible transitions: up with probability p, and down with probability (1-p). This can be seen as a Binomial distribution with parameters m and p, respectively.

But not all states can be reached. For instance, you can't get more than j-i steps away from the state it occupied at time i, neither can it occupy certain states due to its periodicity of 2, which is why these conditions are listed and the transition probability is 0 otherwise.
 
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