Now, consider the following one-period model, with two assets and three possible outcomes: Price at time 0 Price at time 1 Outcome Outcome 2 Outcome 3 Asset 1 55 40 60 88 Asset 2 85 60 120 96 There is also a bank account that pays an interest rate R = 0.2 per period. (b) Write down the set of simultaneous equations that must be satisfied by the risk-neutral probabilities (91, 92 and 93) for this market. (You may assume that such probabilities do indeed exist in this case.)

Now, consider the following one-period model, with two assets and three possible outcomes: Price at time 0 Price at time 1 Outcome Outcome 2 Outcome 3 Asset 1 55 40 60 88 Asset 2 85 60 120 96 There is also a bank account that pays an interest rate R = 0.2 per period. (b) Write down the set of simultaneous equations that must be satisfied by the risk-neutral probabilities (91, 92 and 93) for this market. (You may assume that such probabilities do indeed exist in this case.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

please solve it in 30 minute please Consider an infinitely repeated game where the stage game is the game of chicken: Swerve Straight Swerve 0,0 -1,1 Straight 1, –1 -10, -10 Assume that the discount factor is very close to one. For concreteness, you can assume that d = 0.99. (a) Is there an SPE in which player l's payoff is 1/(1 – 6)? Explain. (b) Is there an SPE in which each player gets a payoff of 0? Explain. (c) Is there an SPE in which player l's payoff is -2/(1 – 8)? Explain.
"A financial investor has $31,000 to invest. The choices have been narrowed down to the following two options.-OPTION 1:Invest in a foreign bond that will mature in one year. This will entail an immediate brokerage fee of $100. For simplicity, assume that the bond will provide interest of $2,470, $2,130, or $1,527 over the one-year period and that the probabilities of these occurrences are assessed to be 0.29, 0.43, and 0.28, respectively.-OPTION 2:Invest in a $31,000 certificate with a savings-and-loan association. Assume that this certificate has an effective annual rate of 5.6%.Which form of the investment should the investor choose in order to maximize her expected financial gains? Enter the expected net gain (total return - initial investment - fee) of the preferred option."
Suppose that the following binary dependent models. The model is based on the driving test of the 400 randomly selected driver’s license applicants. Y=1 if passed the test, or 0 otherwise, and X1 is years of experiences, X2 is the years of educations. Logit: P(Y=1/X) = F(0.563+ 0.040X1+ 0.057X2) What are the probabilities of passing the test for a person with 10 years of experiences and 10 years of educations in each model?
E1
A health economist is conducting the analysis and making a choice between the following two choices: Choice A: there is a certain outcome that the patient will stay in chronic health state X for the rest of his life T Choice B: the treatment has two possible outcomes, either the patient is returned to full Health (1) of the rest of his life T with probability p; the patient dies (0) immediately with the remainig probability What is the utilty value of the health state X? X=P X=PT X=(1-P)/P X=PT/(1-P)
Solve for D and E pls
Q1)d) Country Road Two drivers round the corner of a country roud from opposite directions, and find they are about to eroh head-on. Each can eitber veer left or right: so long as they make the same decision, they are unscathed. Car 2 Left Right -100,-100 0,0 Car 1 Left 0,0 Right -100, -100 B(Left)= Dominant Strategies for Car 1: %3D B (Right) Dominant Strategies for Car 2: B2(Left) = Social Welfare Maximum Strategies: %3D ... Nash Equilibrium: Ba(Right) = %3D
We consider the following decision problem, with 4 decisions di,i∈{1,…,4}, and four possible outcomes ωi,i∈{1,…,4}, with the following table of profits: ω1 ω2 ω3 ω4 d1 30 30 0 30 d2 20 20 20 20 d3 0 50 10 40 d4 15 30 10 25 Which decision should be chosen for rewards depending on four different possible outcomes, according to the maximin rule, maximax rule, and optimism-pessimism rule with α<1/3?
Please correct answer and don't use hand rating
EXAMPLE 18.3 Micro Pizza Heater: Market Demand A factory renovation is needed to build a compact microwave with a new shape, which will be called the Micro Pizza Heater. The low sales-volume prediction (20,000 heaters per year) has a subjectively estimated probability of 30%. The most likely market prediction is 30,000 units sold per year. The optimistic market prediction (30,000 sold the ﬁrst year, with annual increases of 5000) has a subjectively estimated probability of 10%. In all cases, the factory equipment and the market will last 5 years. The net revenue will be $10 per microwave. What is the probability distribution for the net revenue?
Repeated Game Consider the game below, which is infinitely repeated at t = 1,2, .... Both players discount the future at rate d E (0, 1). The stage game is C C 5,5 0,6 D 6,0 1,1 1. The following three questions are about "Grim Trigger" strategies. (a) Describe the "Grim Trigger" strategy profile of this game. (b) Draw the finite automata representation of this strategy profile. (c) Find the lowest value of 8 for this strategy profile to form a subgame perfect equilibrium. 2. Suppose that the players play (C,C) in period t = 1, 3, 5, ... and plays (D,D) in period t = 2,4, 6, ... Compute the discounted payoff of each player. 3. Find a subgame perfect equilibrium such that, on the equilibrium path, (D,D) is played at periods t = 1, 3, 5, ..., and (C,C) is played at periods t = 2, 4, 6, ... Write down the finite automata representation for the strategy profile you proposed. Find the lowest value of d for the profile to form a subgame perfect equilibrium.
those determinations. Respond to the following questions in a minimum of 175 words: . Consider a situation that you might need to use your understanding of probability to make an informed decision. • What sorts of information would you collect? • How might you use what you have learned about probability to determine a course of action? What are the possible benefits and limitations of this approach? Due Monday Reply to at least 2 of your classmates. Be constructive and professional in your responses. Copyright 2020 by University of Phoenix. All rights reserved. New Group 1 17 Responses 33 Replies