Problem 1
Whether the stock goes up tomorrow depends upon whether it
increased today and yesterday. If the stock increased today and
yesterday, it will decrease tomorrow with probability α1 . If the
stock increased today and decreased yesterday, it will decrease
tomorrow with probability α2. If the stock decreased today and
increased yesterday, it will decrease tomorrow with probability α3.
Finally, if the stock decreased today and yesterday, it will
decrease tomorrow with probability α4.
a) Define the states...