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how to simulate a markov chain?

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Hilde on 16 Oct 2013
Answered: Jonathan LeSage on 16 Oct 2013
we have a geometric random walk for modeling the behavior of the price of a stock over time. state space is 1,02^j with j from -100 to 100. initial price is p(0) = 1. if p(t) = 1,02^100 then p(t+1) = 1,02^99. if p(t) = 1,02^-100, then p(t+1) = 1,02^-99 with probability 0,99, and the price remains unchanged with probability 0,01- our question is: how do we write a code to simulate the process?

Answers (1)

Jonathan LeSage
Jonathan LeSage on 16 Oct 2013
From what I gather from you description, this question has already been answered:


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