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Steven Hoernicke

ECEN 3810 Probability Project

The strategy to maximize the expected wealth at the end of day 1 was to make b as large as
possible, in order to gain the most wealth from the stock market. With the work shown below in
Figure 1, if E[X1] > 1 then you set b = 1 because then you will gain the most amount of wealth
after day 1. Then if b = 1 and a is less than 1, you cannot go bankrupt after the first day since
you will not lose everything you put in. You will still have some money left over even if the stock

Figure 1
To get the most expected wealth after the second day would be again to set b = 1, because that
is only way you can get the most amount of money in both days. The math for finding the
expected value of day 2 is shown below in Figure 2. The second day is similar to the first if that
the expected value is greater than 1 then but all your money in stock, that is only way to make
the maximum amount of money by the end of day 2.

The strategy to earn the most possible amount of money would put all the money into stock
every single day, but that is not really effective as the market it random and very easy to lose all
your money. My initial strategy was have a value around 0.7, that way you can gain a lot more
money when the stock increases but still have some cushion if the stock decreases. Using the
matlab code, I tested ranges between 1 and 0 to find the b value that consistently got the
highest wealth. Values like 0.99 and 0.1 did not yield in much wealth, expectedly. Running
through the programs hundreds of times, the value that seemed to stick was b = 0.65.
The best idea for the b value was a function that used the slope of previous days to project
whether the next day will yield a decrease or an increase. Honestly, I was unable to figure out
how to code this function, so I decided the stick with the constant value as it yielded just as high
results as other functions.