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Technology Stocks : Ascend Communications (ASND)

ASND 210.50

+0.5%

Nov 21 9:30 AM EST

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To: Jeff Jordan who wrote (36308)	2/24/1998 7:42:00 PM
From: michael modeme	Read Replies (1) of 61433

In regards to the dice problem, here's how it's done: Call each time a pair of dice is rolled an event. Each event is assumed to be independent of previous outcomes (as well as subsequent outcomes) -- this is empirically a very good assumption The probability that the outcome of an event is 12 is (1/6)(1/6) = 1/36 ; this is because the two die are independent of oneanother with equal probabilities of obtaining a 1,2,3,4,5, or 6 Since we multiply probabilities of independent events, the probability of rolling 3 12's in a row is (1/36)(1/36)*(1/36) = 0.0000214 But the probability of rolling a 12 CONDITIONAL on rolling two previous 12's is simply 1/36 from independence. Now, to relate this to stocks: most stochastic (random) models of stock prices assume independence between the a current stock price move and previous stock dynamics. They do this because it's easier to treat mathematically. However, it has been noted that there is a correlation between past stock dynamics and current stock dynamics (a weak positive correlation). Hope that helps

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