Discussion 9

The price of one share of stock in the Pilsdorff Beer Company (see Exercise 8.2.12) is given by Yn on the nth day of the year. Finn observes that the differences Xn = Yn+1 − Yn appear to be independent random variables with a common distribution having mean µ = 0 and variance σ2 = 1/4. If Y1 = 100, estimate the probability that Y365 is: The pnorm function can be utilized to solve this problem

X1 <- (100-100)/sqrt(364)
X2 <- (110-100)/sqrt(364)
X3 <- (120-100)/sqrt(364)

# Mean and sd:
mean <- 0
sd <- sqrt(1/4)
  1. \(\geq 100\)
pnorm(X1, mean, sd, lower.tail=FALSE)
## [1] 0.5
  1. \(\geq 110\)
pnorm(X2, mean, sd, lower.tail=FALSE)
## [1] 0.1472537
  1. \(\geq 120\)
pnorm(X3, mean, sd, lower.tail=FALSE)
## [1] 0.01801584