Calculate minimal expected amount, Econometrics

Assignment Help:

A store is known for is bargains. The store has the habit of lowering the price of its bargains each day, to ensure that articles are sold fast. Assume that you spot an item on Wednesday (there is only one of it left) that costs 30 Euro and that you would like to buy for a friend as present for Saturday. You know that the price will be lowered to 25 Euro on Thursday when the item is not sold, and to l0 Euro on Friday. You estimate that the probability that the item will be available on Thursday equals 0.7. You further estimate that assuming that it is still available on Friday when it was available on Thursday equals 0.6. You are sure that the item will no longer be available on Saturday. When you postpone your decision to buy the item to either Thursday or Friday, and the item is sold, you will buy another item of 40 Euro as present for Saturday.

a) Formulate the problem as stochastic dynamic programming problem. Specify phases, states, decisions and the optimal value function.
b) Draw the decision tree for this problem.
c) Give the recurrence relations for the optimal value function.
d) What is the minimal expected amount that you will pay for your present, and what is the optimal decision on Wednesday?

 


Related Discussions:- Calculate minimal expected amount

Econometric techniques analyse daily prices, Choose a share from a market s...

Choose a share from a market such as LSE, NYSE, NASDAQ, etc. [Data sources could be Datastream, Google Finance or others]. Prepare a report which involves the following aspects:

Nonlinear specification and dummy variables, Suppose you have a model of ca...

Suppose you have a model of capital investment by a U.S. rm. Imagine that yt, x1t and x2t are annual measures of investment, lagged pro t, and lagged capital stock, all in real do

Stata, Please help me in using Stata

Please help me in using Stata

Material handling system, what factors affect the choice of material handli...

what factors affect the choice of material handling systems

Future economic growth, What trends do you see in the Economic, Political, ...

What trends do you see in the Economic, Political, and Cultural environment of society that will affect the industry in the future? Answer) The trends that will affect the indus

Weighted least squares, I am trying to apply weighted least squares but Im ...

I am trying to apply weighted least squares but Im not getting a very good fit when I regress the residuals on the variables so I don''t think the weights will be very good

Portfolio maximization , Derive marginal benefit of reducing principal bala...

Derive marginal benefit of reducing principal balances

Coursework, Following the general methodology used by econometricians as ex...

Following the general methodology used by econometricians as explained in the session for week 1 (eight steps), explain how you would proceed to determine if a good complies with t

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd