Problem 5.4 (10 points) Let (Sn)n-01. be a simple, symmetric random walk with starting value So-s e R. (a) Show that ES for alln0 b) Show that ElSn+1 Sn] Sn for 0. (c)Suppose that (Sn)n-0,12,. . deno...
Problem 5.4 (10 points) Let (Sn)n-01. be a simple, symmetric random walk with starting value So-s e R. (a) Show that ES for alln0 b) Show that ElSn+1 Sn] Sn for 0. (c)Suppose that (Sn)n-0,12,. . denotes the profit and loss from $1 bets of a gambler with initial capital So-s who is repeatedly playing a fair game with 50% chances to win or lose her stake. What are the interpretations of the results in (a) and (b)?
Problem 5.4 (10 points) Let (Sn)n-01. be a simple, symmetric random walk with starting value So-s e R. (a) Show that ES for alln0 b) Show that ElSn+1 Sn] Sn for 0. (c)Suppose that (Sn)n-0,12,. . denotes the profit and loss from $1 bets of a gambler with initial capital So-s who is repeatedly playing a fair game with 50% chances to win or lose her stake. What are the interpretations of the results in (a) and (b)?