CT4 Sept 2008 Q 11 part (vi) IFoA

Discussion in 'CS2' started by Rajat gupta, Mar 16, 2019.

  1. Rajat gupta

    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
     
  2. Calm

    Calm Ton up Member

    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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