A tiny financial model: To investigate investment strategies, consider the following: You can choose to invest your money in one particular stock or put it in a savings account. Your initial capital is $ 1000. The interest rate r is 0.5% per month and does not change. The initial stock price is $ 100. Your stochastic model for the stock price is as follows: next month the price is the same as this month with probability 1/2, with probability 1/4 it is 5% lower, and with probability 1/4 it is 5% higher. This principle applies for every new month. There are no transaction costs when you buy or sell stock. 560 – HW # 6 Page 1 of 2 Your investment strategy for the next 5 years is: convert all your money to stock when the price drops below $ 95, and sell all stock and put the money in the bank when the stock price exceeds $ 110. Describe how to simulate the results of this strategy for the model given. Note: You will have to generate 60 random variables with distribution U(0,1) to answer this question. Use a C program to generate 60 random numbers. Include list of your random numbers in your HW solution.

A tiny financial model: To investigate investment strategies, consider the following: You can choose to invest your money in one particular stock or put it in a savings account. Your initial capital is $ 1000. The interest rate r is 0.5% per month and does not change. The initial stock price is $ 100. Your stochastic model for the stock price is as follows: next month the price is the same as this month with probability 1/2, with probability 1/4 it is 5% lower, and with probability 1/4 it is 5% higher. This principle applies for every new month. There are no transaction costs when you buy or sell stock. 560 – HW # 6 Page 1 of 2 Your investment strategy for the next 5 years is: convert all your money to stock when the price drops below $ 95, and sell all stock and put the money in the bank when the stock price exceeds $ 110. Describe how to simulate the results of this strategy for the model given. Note: You will have to generate 60 random variables with distribution U(0,1) to answer this question. Use a C program to generate 60 random numbers. Include list of your random numbers in your HW solution.

Operations Research : Applications and Algorithms

4th Edition

ISBN:9780534380588

Author:Wayne L. Winston

Publisher:Wayne L. Winston

Chapter13: Decision Making Under Uncertainty

Section13.2: Utility Theory

Problem 11P

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