Monte carlo simulation-sensitivity analysis

Reference no: EM1398269

A decision maker is working on a problem that requires her to study the uncertainty surrounding the payoff of an investment. There are three possible levels of payoff -$1,000, $5,000, and $10,000. As a rough approximation, the decision maker believes that each possible payoff is equally likely. But she is not fully comfortable with the assessment that each probability is exactly 1/3, and so would like to conduct a sensitivity analysis. In fact, she believes that each probability could range from 0 to ½.

1. Show how a Monte Carlo simulation could facilitate a sensitivity analysis of the probabilities of the payoff

2. Suppose the decision maker is willing to say that each of the three probabilities could be chosen from a uniform distribution between 0 and 1. Could you incorporate this information into your simulation? If so, how? If not, explain why not, or what additional information you would need

Reference no: EM1398269

Questions Cloud

Possible outcomes of the experiment : A quality control inspector selects a part to be tested. The part is then declared acceptable, repairable, or scrapped. Then another part is tested. List the possible outcomes of this experiment regarding two parts.

Why does washing buffer have high concentration of salt : Why does washing the membrane with a buffer containing high concentrations of salt.

Variables of interest to healthcare managers : Identify 5 variables of interest to healthcare managers. Select and define one variable and include your rationale for selecting this variable. What is the difference between a dependent and independent variable?

Estimate the ratio of normal to potato leaved plants : A cross ia made in tomatoes between a female plant from a pure line that is trisomic for chromosome 6 and a normal diploid male plant that is homozygous for the recessive allele for potato leaf (pp).

Monte carlo simulation-sensitivity analysis : A decision maker is working on a problem that requires her to study the uncertainty surrounding the payoff of an investment. There are three possible levels of payoff -$1,000, $5,000, and $10,000.

Confidence interval estimate of mean number migraine attacks : Construct the 95% confidence interval estimate of the mean number of migraine attacks for those treated with acupuncture.

In what other ways can chromatin be remodeled : What different types of enzymes are used to modify histones, and how do these enzymatic modifications lead to chromatin remodeling?

Statistical concepts of anova-samples : What is an independent sample and what is a related sample? When should researchers use varying hypothesis tests for the different types of samples?

Find expected height of plant that homozygous for 1 alleles : Three pairs of genes with two alleles each (A1 and A2 , B1 and B2 , and C1 and C2 ) control the height of a plant. Suppose that the 1 allele is dominant in each case and the 2 allele is recessive.

User Account

All Pages