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Finance

 MarkovChain
 create new finite-state Markov chain

 Calling Sequence MarkovChain(P, S, i, n)

Parameters

 P - Matrix; transition matrix S - Vector; state space i - posint; initial state n - posint; number of states per year

Description

 • The MarkovChain command creates a new finite state Markov chain.
 • The parameter P is the transition matrix; it must be a square matrix (see Matrix) of size $d$, where $d$ is the number of states in the Markov chain. The value ${P}_{i,j}$ defines the probability of moving from state $j$ to state $i$.
 • The parameter S is a vector containing values for all possible states of the process.
 • The parameter n is the number of states per year. This process can only be simulated with $m=nk$ time steps per year, where $k$ is a positive integer. Assume for example that $X$ is a finite state Markov chain with $3$ states per year. If we simulate the process $X$ on the interval $0..2$ with 12 time steps, then the state change can occur only at steps $2$, $4$, $6$, $8$, and $10$.

Examples

 > with(Finance):
 > P := <<0.5, 0.5>|<0.2, 0.8>>;
 ${P}{≔}\left[\begin{array}{cc}{0.5}& {0.2}\\ {0.5}& {0.8}\end{array}\right]$ (1)
 > X := MarkovChain(P, <1.0, 2.0>, 1, 5);
 ${X}{≔}{\mathrm{_X0}}$ (2)
 > SamplePath(X(t), t = 0..2, timesteps = 10, replications = 10);
  (3)

The following command will issue an error because the number of time steps used in simulation must be a multiple of the number of states per year.

 > SamplePath(X(t), t = 0..2, timesteps = 12, replications = 10);

Compatibility

 • The Finance[MarkovChain] command was introduced in Maple 15.