Illustrate Volatility Clustering and Autoregressive Conditional Heteroskedasticity?
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Illustrate Volatility Clustering and Autoregressive Conditional Heteroskedasticity?
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- The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): State of Nature Low Demand Medium Demand High Demand Decision Alternative s1 s2 s3 Manufacture, d1 -20 40 100 Purchase, d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. What is Gorman's optimal decision strategy?Decision strategy:If F then .If U then . What is the expected value of the market research information?Expected value: $ What is the efficiency of the information? If required, round your answer to one decimal place.Efficiency:A study shows the following one-generation transition probabilities among four major income groups. Eldest Son's Income Father's Income Bottom 10% 10%-50% 50%-90% Top 10% Bottom 10% 0.45 0.32 0.21 0.02 10%-50% 0.07 0.49 0.4 0.04 50%-90% 0.04 0.3 0.48 0.18 Top 10% 0.01 0.1 0.3 0.59 In the long term, what percentage of male earners would you expect to find in each category? (Round your answers to two decimal places.) bottom 10% % 10%-50% % 50%-90% % % top 10%Ultimate Gaming is trying to figure out which game they should release next quarter among four possible games. There is uncertainty when it comes to projecting profitability since it depends on the state of the gaming market 6 months in the future. A profit estimate is provided for good v. bad gaming market for the four possible games. UG estimates that the market will be good with a 65% chance. Alternatives| Bad Market | Good Market Game 1. 4.1 5.8 Game 2 2.5 7.1 Game 3 5.4 4.9 Game 4 4.5 5.3 UG believes that a game turning into a blockbuster is related to pre-release marketing events. Each event results in a success (blockbuster) or a loss (regular profitbility). UG has 6 marketing events and believes there is a 15% chance of success and having a block buster. What are the chances that exactly 2 of the events will result in a blockbuster? What…
- Q.4 Explain with all necessary mathematical details as how would you determine the risk-neutral geometric Brownian motion price of an up-and-out European barrier option using the multi- period binomial model?Please don't provide handwritten solution.....The following maintenance alternatives are considered for a new assembly line that has an acquisition cost of $250,000. Each has distinct service life expectancies and corresponding probabilities. Determine the maintenance regime most likely to yield an annualized overall cost less than $32k, given an annual rate of 7%. Maintenance regime $0 throughout life $25000 (in year 4) $35,000 (years 3 and 6) $75,000 (year 6) 7 (0.2) 8 (0.15) 10 (0.25) 12 (0.3) Service life years (probability) 8 (0.6) 10 (0.5) 12 (0.5) 13 (0.33) 15 (0.37) 9 (0.2) 12 (0.35) 14 (0.25)
- 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…Q3An airline offers "advance-purchase" fares to customers who buy their tickets at least four weeks before the flight. The airline has noticed that 80% of its customers who buy tickets don't take advantage of advance-purchase fares and the remaining 20% do. The no-show rate for those who don't have advance-purchase fares is 25%, while for those who do have them, it is only 15%. (a) Calculate the probabilities labeled on the tree diagram below. (Give answers correct to three decimal places.) A tree diagram with 6 branches is shown. The tree diagram begins at a point and an upper and lower branch extend from this point to the right. From each of these two branches two more upper and lower branches extend to the right. The branches extending from the first point from top to bottom are labeled a and b and end at points labeled "no advance purchase" and "advance purchase" respectively. The branches extending from "no advance purchase" and "advance purchase" from top to bottom are labeled…
- Regarding expected BCA and the example of climate change, O a. reducing greenhouse gases now can be thought of as cheap insurance to rule-out the possibility of a low probability, but very high damages contingency. O b.uncertainty is excellent economic excuse for inaction. Oc the expected net benefits of reducing greenhouse gases are negative since there is a high probability that the costs outweigh the benefits. O d.using a larger discount rate increases the expected net benefits.b. Demand for electricity next year is projected to be one of the following quantities: 18,000GWH with probability of 0.4, 25,000GWh with probability of 0.4, or 30,000GWH. i. If this year's demand is 17,500GWH, what should be the additional amount to plan against if the energy ministry would want to plan for the increase using expected value analysis? ii. What is the standard deviation of the suggested accompanying amount?b) Blue Star United, a major electronics distributor, has hired Southwest Forecasters, a market research firm, to predict the level of demand for its new product that combines cell phone and complete Internet capabilities at a price substantially below its major competitors. As part of its deliverables, Southwest provides a rating of Poor, Fair, or Good, on the basis of its research. Prior to engaging Southwest Blue Star, management concluded the following probabilities for the market-demand levels: P(Low)== P(s1) = 0.1 P(Moderate) = P(s2) = 0.5 P(High) = P(s3) = 0.4 Southwest completes its study and concludes that the market potential for this product is poor. What conclusion should Blue Star reach based on the market-study results? Proportion of Assessments Provided by a Market-Research Organization Prior to Various Levels of Market Demand (Conditional Probabilities) are given in, the following table: Market Demand That Actually Occurred After Assessment Was Provided Moderate Demand…