medium · Quantitative Finance prob-stats
A market-state Markov chain has two regimes: 'Calm' and 'Stressed'. From 'Calm', the market stays calm with probability 0.8 and becomes stressed with 0.2. From 'Stressed', it stays stressed with 0.7 and becomes calm with 0.3.
In the long-run stationary distribution, what fraction of the time is the market in the 'Stressed' state?
- 40%
- 33%
- 60%
- 20%
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