finc 6000 group assignment Essay examples

3661 Words Oct 1st, 2014 15 Pages
FINC 6000 Group Assignment

1. Describe the background of auction: contents, name of auction house, time, location, history of auction house, etc.
Pickles Auctions is the largest auction group in Australia which was established in 1964(About pickles auctions - australia's largest auction group 2014 ).The head office of Pickles Auctions is located in Sydney and 22 branches were set up around Australia. Pickles Auctions sells a broad range of vehicle types which includes Ex-Government, Fleet, Repossessed, Light Commercials, 4WD, Prestige, Luxury, Classic and Exotic Motor Vehicles(About pickles auctions - australia's largest auction group 2014 ).
The Luxury Vehicle Auction is a public auction held on the 15th September 2014 at 6:00pm. It
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Provide histograms and CDF of prices. Compare estimated prices to realized prices using stochastic dominance and mean-variance criteria.
a) Stochastic Dominance Criteria
Stochastic dominance is a form of stochastic ordering. It can be used in decision analysis to refer to situations where one probability distribution can be ranked as superior to the other probability distribution.
Set the CDF of realized prices be and the CDF of estimated prices be , where P refers to Price.
In terms of the cumulative distribution function of two assets, one asset is said to be stochastically dominant over the other if the CDF of one asset is greater than the other in every state of nature. This is the first-order stochastic dominance. First order stochastic dominance applies to all increasing utility functions.
In this case, if the CDF of estimated prices are always greater than the CDF of realized prices, we can identify that realized prices dominant estimated prices in first order.

The chart below shows the CDF of estimated prices and realized prices. Clearly, from the chart, the first-order dominance exists between these two prices and we can infer a conclusion that realized prices dominant estimated prices in first order. This result means that there
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