Book: Statistics and Data Analysis for Financial Engineering

With R examples

Chapter 20, Exercise #1 (p. 642)

1. Show in Example 20.2 that the MAP estimator is 6/7.

Example 20.2 is attached

Thank you

Example 20.2. Updating the prior beliefs about the probability that a stock price will increase We continue Example 20.1 but change the simple, but unrealistic, prior that said that o was either 0.4 or 0.6 to a more plausible prior where o could be any value in the interval [0, 1], but with values near 1/2 more likely. Specifically, we use a Beta(2,2) prior so that TT (0) = 60(1 -0), 0