Homework # 1

ESI6321
due 9/3/15

1. Consider the gamblers ruin problem with the additional possibility of a draw. Let Yt denote
the winnings (or losses) for the rst player associated to the t-th play. We assume
8
with prob. p
< +1
0
with prob. 1 2p
Yt =
:
1
with prob. p

where p 2 (0; 21 ) and the collection fYt : t > 0g is independent and identically distributed
(i.i.d). Assume the gambler starts with n dollars and his opponent with a n dollars. Find
the probability of losing all n dollars. Let T (n) denote the duration of the game (i.e. the
number of plays until one of the players accumulates a). Show that the expected duration of
the game satises the dierence equation:
pE[T (n + 1)]

2pE[T (n)] + pE[T (n

1)] =

Solve the dierence equation and nd the expected duration of the game.
2. A roulette has 37 radial slots of which 18 are red, 18 are black and 1 is green. The gambler
bets one unit on either red or black. If the ball falls into a slot of the same color then the
gambler wins one unit and if the ball falls into a slot of the other color then the casino wins.
If the ball lands in the green slot then the bet remains for the next spin of the wheel or more
if necessary until the ball lands in either red or black. The original bet is either returned or
lost depending on whether the outcome matches the original bet or not.
a. Show that the probability of ruin f (n) for a gambler who starts with n dollars and the
casino holds a n dollars satises the equation
36f (n + 1)

73f (n) + 37f (n

1) = 0

Solve the dierence equation.

b. If the casino starts with 106 dollars and the gambler starts with 104 dollars nd the
probability the gambler breaks the casino if 5 103 dollars are bet in each play.
c. Suppose the rules are changed so that if the ball lands on green then the player simply
loses. What is the probability that the player wins given the same initial stakes.
3. A reservoir with total capacity of a units (volume) of water has during each day either a
net inow of two units with probability 31 or a net outow of one unit with probability 23 . If
the reservoir is full or nearly full any excess inow is lost in an overow. Derive a dierence
equation for expected number of days until the reservoir is empty.
4. A car parking lot has 100 spaces. Cars arrive and leave randomly. Arrivals or departures of
cars are equally likely and it is assumed that simultaneous events have negligible probability.
Given that at some instant in time there are n cars parked let f (n) be the probability that
the car parking lot rst becomes full before it becomes empty. Derive a dierence equation
for f (n). What are the boundary conditions ? How many car movements can be expected
before the car parking lot rst becomes full before it becomes empty ?
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