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Compute negative-price probability after n steps

OptiverSoftware Engineer · Online Assessment

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This question evaluates understanding of discrete probability distributions and random-walk processes within Statistics & Math, testing skills in binomial modeling and numeric computation for probabilistic outcomes.

A price starts at value s. Each day for n independent days, it moves to s + x with probability p and to s − x with probability 1 − p (x > 0). After n days, what is the probability that the final price is strictly below 0? Derive a closed-form expression (in terms of a binomial tail or equivalent) and describe an algorithm to compute it accurately for large n.