QUESTION 2 Suppose the stock market model is modified so that the stock's going up tomorrow depends upon whether it increased today and yesterday. Precisely, if the stock has increased for the past two days, it will increase tomorrow with probability 0.85. If the stock increased today but decreased yesterday, then it will increase tomorrow with probability 0.65. If the stock decreased today but increased yesterday, then it will increase tomorrow with probability 0.5. Moreover, if the stock decreased for the past two days, then it will increase tomorrow with probability 0.3. (i) Discuss the MC model for the modified stock market and state clearly any difficulty arising from the MC modelling process and the steps taken to resolve the challenge. Any general conclusion from this special case? (ii) Draw a Transition Diagram to graphically represent the information in the Transition Matrix for the modified model and appropriately explain the meaning of the components of the graph. (ii) Searching for an propriate MATLAB code for an n-state MC model, obtain the cumulative probabilities of the modified stock model and plot both the observational and MC sequences for 20 states and observational sequence of length 25. QUESTION 2 Suppose the stock market model is modified so that the stock's going up tomorrow depends upon whether it increased today and yesterday. Precisely, if the stock has increased for the past two days, it will increase tomorrow with probability 0.85. If the stock increased today but decreased yesterday, then it will increase tomorrow with probability 0.65. If the stock decreased today but increased yesterday, then it will increase tomorrow with probability 0.5. Moreover, if the stock decreased for the past two days, then it will increase tomorrow with probability 0.3. (i) Discuss the MC model for the modified stock market and state clearly any difficulty arising from the MC modelling process and the steps taken to resolve the challenge. Any general conclusion from this special case? (ii) Draw a Transition Diagram to graphically represent the information in the Transition Matrix for the modified model and appropriately explain the meaning of the components of the graph. (ii) Searching for an propriate MATLAB code for an n-state MC model, obtain the cumulative probabilities of the modified stock model and plot both the observational and MC sequences for 20 states and observational sequence of length 25