Take a guided tour through the powerful mathematics and statistics used to model the chaos of the financial markets.

What is the variance of the number of heads you get from flipping 10 fair coins?

Consider flipping 10 fair coins, and counting the number of consecutive HH pairs. The variance of an indicator variable on a single pair is \(\frac{3}{16}.\) There are 9 possible pairs.

Which option correctly describes the variance of the total number of consecutive HH pairs?

We can use indicator variables to compute the variance of prices in simple models of stock prices.

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