Consider an agent whose behavior is best described by prospect theory with loss aversion. Calculatethe value of the following prospect for the agent with value functionv(*;) = {1.57. if and initial wealth w = 1000.r; < 0,Payoff248lo|-248Probability20%70%10%

The value of the prospect given for the agent is 24.8 Expectation of a variable = sum of…

Answered: Consider an agent whose behavior is…

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

Section: Chapter Questions

Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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1. ABC inc. stock is currently selling for $30, one year from today the stock price can either increase by 20% or decrease by 15%. The probability of an increase in the stock price is equal to 0.3. The one-year risk-free rate is 5% What is the value of a European put that expires in one year with an exercise price of $24. 2. Graphically, show the value and the profit and loss of the following butterfly position: Long in a call with an exercise price of $30, short in 2 calls with an exercise price of $45, and long in a call with an exercise price of 60. All calls are written on the same stock and have the same maturity. 3. "Early exercise of an American option on a stock that does not pay any dividend is not optimal regardless of whether the option is a Call or a Put". True, False, or Uncertain. Explain.
Derive the value of k that minimizes the variable. expectation E[(X-k)²], where X is a random
NWP Assessment Player Ul Appl X ples om/was/ui/v2/assessment-player/index.html?launchid=55af9b11-006e-41ba-a782-378cb68e49ba#/question/0 Question 1 of 2 Click here to access the TVM Factor Table Calculator + The cash flow profile for an investment is given below and the interest rate is 8% compounded annually. EOY Net Cash Flow ($) 0 1 2 3 4 5 6 -100 200 Find the present worth of this series using the actual cash flows. $ Round your answer to the nearest dollar. Tolerance is ±4. e Textbook and Media Attempts: 0 of 3 used -/1 Submit Ar
1 Events X and Y are such that P(x)=0.35 and P(x or y)=0.80. Given that X and Y are independent and non‐mutually exclusive, determine p(y). Give your finalanswer as a percentage to two decimal places.
Suppose an oil company is thinking of buying some land for $10,000,000. There is a 60%60% chance of economic growth and a 40%40% chance of recession. The probability of discovering oil is 44%44% when there is economic growth and 32%32% when there is a recession. If there is economic growth and the oil company discovers oil, the value of the land will triple. If they do not discover oil, the value of the land will decrease by 10%.10%. If there is a recession and the company discovers oil, the value of the land will increase by 50%.50%. If they do not discover oil, the land will decrease in value by 75%.75%. What is the expected value of the investment? Give your answer to the nearest dollar. Avoid rounding within calculations. $$ Select the correct interpretation of the expected value. The expected value represents what the actual investment value will be for this land purchase of $10,000,000. The company should make the investment because the expected value…
Possible values of X, the number of components in a system submitted for repair that must be replaced, are 1, 2, 3, and 4 with corresponding probabilities 0.15, 0.15, 0.35, and 0.35, respectively. (a) Calculate E(X) and then E(5 – X). E(X) = E(5 - X) (b) Would the repair facility be better off charging a flat fee of $95 or else the amount $ 150 ? [(5 - X)] Note: It is not generally true that E. E(Y) 150 The repair facility -Select--- v be better off charging a flat fee of $95 because E (5 - X)
Suppose a neighborhood grocery store buys 5 containers of skim milk at the wholesale price of $11 per container and sells it for $22 per container. After the expiration date, unsold milk is removed from the shelves and the grocer receives a credit from the distributor equal to three-fourths of the wholesale price. If the probability distribution of the variable is X and the number of containers sold from this lot is x f(x) 0 1/15 1 2/15 2 2/15 3 3/15 4 4/15 5 3/15 Calculate the expected utility. (Round to two decimal places)
Possible values of X, the number of components in a system submitted for repair that must be replaced, are 1, 2, 3, and 4 with corresponding probabilities 0.35, 0.15, 0.35, and 0.15, respectively. (a) Calculate E(X) and then E(5 - X). E(X) E(5-X) = (b) Would the repair facility be better off charging a flat fee of $70 or else the amount $ 150 (5-X) The repair facility ---Select--- be better off charging a flat fee of $70 because E ]= 150 (5-X)] ? Note: It is not generally true that : E ( =) = E(Y)
6
Expected value = E(x) = x1P1+x2P2+ ... + xnPn Where x = the outcome and P = probability of outcome Dr. Kimball likes to go fishing with his son. To motivate his son, he pays him for the first fish that he catches. There are two types of edible fish that his son can catch: Trout and Salmon. If he catches a Trout he pays him $5, if he catches Salmon $3. There is a 20% chance that he will catch a trout and 50% that he will catch a Salmon.

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Consider an agent whose behavior is best described by prospect theory with loss aversion. Calculate the value of the following prospect for the agent with value function v(x;): , if z; 2 0; 1.5z; , if r; < 0, and initial wealth w = 1000. Payoff Probability 248 -248 20% 70% 10%