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Probability tree - probabilities and values of each branch

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Christoph Meier
Christoph Meier on 26 Feb 2016
Dear Matlab community,
I found a somewhat related post, but it is not quite the same, so I decided to start a new post.
The problem: I am looking at a probability tree: Stage one: The price of a stock is initially $50 In each round, the price can change
(-3,-2,-1,0,+1,+2,+3), so we are looking at seven possible changes.
The probabilities for those events are static, and known:
(0.08,0.14,0.22,0.3,0.14,0.08,0.04), and price changes are independent for each round of changes.
Required:
  • all possible prices of the stock after 20 rounds, and
  • the probability for each of those prices after 20 rounds.
I would much appreciate your help! Thank you very much in advance!

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