Brownian Motion Hitting Probability - Quant Trader Interview Question
Difficulty: Medium
Category: Stochastic Calculus
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Topics: probability, brownian-motion, gamblers-ruin, hitting-time
Problem Description
A trader starts with a clean slate (value of 0). Their trading strategy can be modeled as standard Brownian motion. They have two goals: either realize a profit of 3 dollars, or suffer a loss of 7 dollars, at which point they will stop trading. What is the probability the trader achieves the 3 dollars profit before hitting the 7 dollars loss limit?
Assume the trader cannot stop trading before reaching either the profit target or the loss limit.
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