The Noisy Oracle Agreement - Quant Trader Interview Question
Difficulty: Medium
Category: Probability & Statistics
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Topics: probability, bayes-theorem, trading-intuition, mental-math
Problem Description
Your firm has developed a new indicator that predicts whether a stock will close higher or lower on a given day. Backtesting shows this indicator is 60% accurate. You want to use this indicator, but only if you are 99% certain of the predicted outcome. Assuming the indicator's predictions are independent, how many consecutive agreeing predictions from the indicator do you need to achieve this level of confidence?
In other words, we want to find the smallest integer $n$ such that $\frac{0.6^n
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