Solve matrix of transition probabilities

Reference no: EM13119179

Matrix of transition probabilities

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 .6.

a Construct the matrix of transition probabilities.

b. Provide a system of equations for calculating the steady state probabilities.

Reference no: EM13119179

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