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Binary Options - Probabilities And Gamblers
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Binary Options  -  Probabilities And Gamblers

If you were a gambler shooting dice just a few hundred years ago, you were treading in unknown territory. And it was hard to find a game; there were no Vegas or Atlantic City casinos for action. Maybe that was because probability theory hadn’t yet been invented and games of chance such as dice and coin tossing were

still unsolved puzzles. Intuition and experience were the only available guidelines, and no one knew how to calculate the precise odds or payoffs.

But gamblers are nothing if not crafty. The first documented inquiries were about important, weighty topics such as, Which comes first when tossing three dice: a pair of sixes or any three-of-a-kind? Over time, several mathematicians took up these types of questions as a challenge among themselves. They used dice and coins to develop simple, but intriguing, mathematical propositions.

Just as mathematicians learned a great deal from coin tosses, so can we. Coin tossing, it turns out, is the perfect example of a random result which has only two possibilities. Binomials have been found to play a critically important role in stock option modeling. Clearly, a coin toss generates heads and tails randomly. We can use it then as a random generator of price upticks by merely substituting the H and T of the coin for the up (U) and down (D) of a price move.

Virtually all studies by mathematicians and economists for the past 100 years agree on one main point: to a very good approximation, price changes in markets act like randomly distributed variables. To learn about markets, then, it is necessary for us to become acquainted with probabilities, statistics, and distributions. There is no simpler or more clear-cut demonstration of the actions of a random variable than the common coin toss. It is by

far our easiest introduction to the math of probabilities, statistics, and distributions.

Here is a hurdle we must overcome: there are no known models that perfectly match price movements. One reason we study coin tosses is to become acquainted with the binomial distribution which looks, acts, and smells like the normal distribution if we toss enough coins. We then have a simple introduction to an otherwise complex concept, the normal distribution, which is essential to modeling stock prices and evaluating options. We won’t be discussing any of these complex ideas for a while yet, so relax.

We will spend a lot of time trying to come to grips with what binomials and coin tosses can help us learn about the options market. When it all comes together, it will be quite impressive, for they can help us learn a lot.

Binary options will definitely help you. In order to understand binary options better, read this article once more.


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