ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.6 : In a random walk, a stochastic process starts off with a score of A. This is a score for a chemical engineering test. At each discrete event, there is probability p chance you will increase your score by B and a (1 - p) chance you will decrease your score by C. The event happens T times. Let D = expected value of score. (a) Form an equation of D as a function of A, B, C, T and p. (b) Find the value of D if A = 60, B = 1, C = -1, T = 50, p = 0.5.
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Answer Posted / kangchuentat
ACCOUNTING AND FINANCIAL ENGINEERING - ANSWER 34.6 : (a) D = A + T [ pB + (1 - p) C ]. (b) D = A + T [ pB + (1 - p) C ] = 60 + 50 [ 0.5 (1) + (1 - 0.5) (-1) ] = 60. The answer is given by Kang Chuen Tat; PO Box 6263, Dandenong, Victoria VIC 3175, Australia; SMS +61405421706; chuentat@hotmail.com; http://kangchuentat.wordpress.com.
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