Question

The daily price of a farm commodity is up, down, or unchanged from the day before. Analysts predict that if the last price was down, there is a 5 probability the next will be down, and a 4 probability the price will be unchanged. If the last price was unchanged. there is a 35 probability it will be down and a .35 probability it will be up. For prices whose last movement was up, the probabilities of down, unchanged, and up are.1, .3, and . (b) i. Construct the matris of transition probabilities. i. Calculate the steady state probabilities Page 4 of4

Answer 1

The stochastic matrix will be 35 .3 .35 Where 1,2 and 3 denote down, unchanged and up. 2>Let the steady state vectoy be (x.y,z) Then The equations are Now solve them to get the result.

let the stata spaue be S lat the stead stat p 6.3 3 daily price of fim ap unchanaad 2