Skip to main content

TL;DR

Martingale Optional Stopping Theorem: A canonical quantitative trading interview question at olympiad difficulty. Commonly asked at Jane Street, Two Sigma, DE Shaw, Citadel, HRT.

By Valenke Exam Prep Team·Last updated 2026-06-01
olympiadStochastic Processes & Calculus

Martingale Optional Stopping Theorem

Asked at: Jane Street, Two Sigma, DE Shaw, Citadel, HRT

Problem
A gambler starts with $50\$50 and repeatedly bets $1\$1 on a fair coin (heads: +1, tails: -1). The gambler stops when their fortune reaches $0\$0 (ruin) or $100\$100 (target). (a) Using the optional stopping theorem, find the probability of reaching $100\$100 before $0\$0. (b) Find the expected number of bets until the game ends. (c) A new gambler plays the same game but the coin has P(H)=0.51P(H) = 0.51. Set up the martingale to find the ruin probability.

Ready to practice for the Valenke Finance Exam?

Adaptive practice powered by Item Response Theory targets your weak areas. Start with 3 free sessions.

Start free practice →