Martingale (probability theory)

In probability theory, a martingale is a stochastic process in which the expected value of the next observation, given all prior observations, is equal to the most recent value. In other words, the conditional expectation of the next value, given the past, is equal to the present value. Martingales are used to model fair games, where future expected winnings are equal to the current amount regardless of past outcomes.

Stopped Brownian motion is an example of a martingale. It can model an even coin-toss betting game with the possibility of bankruptcy.

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