IE1082 Probabilistic Methods in Operations Research (Spring 2023)

Assignment 9
Question 1
Assume that the probability of rain tomorrow is 0.5 if it is raining today, and assume
that the probability of its being clear (no rain) tomorrow is 0.9 if it is clear today. Also
assume that these probabilities do not change if information is also provided about the
weather before today.
(a) Explain why the stated assumptions imply that the Markovian property holds for
the evolution of the weather.
(b) Formulate the evolution of the weather as a Markov chain by defining its states
and giving its (one-step) transition matrix.
 IE1082 Probabilistic Methods in Operations Research (Spring 2023)

Question 2
Consider the second version of the stock market model presented as an example in Sec.
29.2 (Textbook, as shown in the Figure 1). Whether the stock goes up tomorrow
depends upon whether it increased today and yesterday. If the stock increased today and
yesterday, it will increase tomorrow with probability 𝛼1 . If the stock increased today
and decreased yesterday, it will increase tomorrow with probability 𝛼2 . If the stock
decreased today and increased yesterday, it will increase tomorrow with probability 𝛼3 .
Finally, if the stock decreased today and yesterday, it will increase tomorrow with
probability 𝛼4 .
(a) Construct the (one-step) transition matrix of the Markov chain.
(b) Explain why the states used for this Markov chain cause the mathematical
definition of the Markovian property to hold even though what happens in the
future (tomorrow) depends upon what happened in the past (yesterday) as well as
the present (today).
 IE1082 Probabilistic Methods in Operations Research (Spring 2023)

Question 3
Reconsider Question 2. Suppose now that whether or not the stock goes up tomorrow
depends upon whether it increased today, yesterday, and the day before yesterday. Can
this problem be formulated as a Markov chain? If so, what are the possible states?
Explain why these states give the process the Markovian property whereas the states in
Question 2 do not.
 IE1082 Probabilistic Methods in Operations Research (Spring 2023)

Question 4
Please simulate the weather in May (31 days) according to the conditions in PPT (Page
19, as shown in the Figure 2). Please show the specific process and the simulation
results. (Consider using random numbers)

Figure 1

Figure 2
IE1082 Probabilistic Methods in Operations Research (Spring 2023)