Essays on Payoff

Abstract

Decision-making under risk occurs when there is an uncertainty about the states of nature that can occur, but the probabilities of each of the states of nature occurring have already been determined. We can use these probabilities to determine additional strategies for decision-making. One such strategy is the Expected Monetary Value (EMV) approach for making an optimal decision. In the problem where the company had to decide on the right investment approach, the company had already done research to determine the various possible states of nature for each of the alternatives as well the probabilities of each of these ...

Abstract

Decision-making can involve a single decision or multistage decisions. When the decision-maker has to make at least two decisions separated in time, such as a situation where a company must first decide if it makes sense to hire an expert to make an actual decision about an investment. As the decision-maker goes on making decisions, the uncertainty diminishes. The probabilities are determined in a reverse manner when compared to regular decision-tree used for decision-making. The resulting process is Baye’s rule or theorem. The company wants to find out if hiring an expert so that he or she can ...

Business

Business The investment is spending money with expectations on return. Typically, the decisions with higher return expectations require certain risk, the options with moderate risk rate are characterized with medium risk, and the low-return decisions are the most reliable. Therefore, the investment decision is based on the investor’s expectation about the return, probabilities of success for different options, and willingness to take the risk (Dwivedi, 2010). Hence, a manager has to be aware of all the options and make the decision basing on reliable scientific tools. These tools are the decision tree and payoff analysis. The decision analysis ...

Abstract

Decision situations can be analyzed using different methods out which decision trees are useful to analyze complex situations. Frequently, decision situation is complicated because the payoffs are not only dependent on the initial decision but also dependent on the additional decisions are taken in the sequential step process. Decision trees can identify the best initial as well as the best subsequent actions. The decision criterion that a decision tree satisfies the Bayesian expected payoff criterion. The present case has multiple alternatives and multiple probabilities; decision tree is the best method for solving this. The resulting decision tree has three ...

Introduction to Convertible Bonds

Convertible bonds consist of the bonds that are easily converted into the stocks. These convertible bonds are issued by the company and like any other normal bonds it has maturity date and face value. The convertible bondholder has all the rights of converting the bond into the predetermined share numbers of the respective company in an identified period. The factors influencing the bondholder converting or not depend on the stock interest rates and prices.

Contract conditions and Payoffs

The convertible bonds market conditions are not standardized and hence making it differ depending on every contract case. The maturity date being one of the ...

Executive Summary 3

Introduction 4 Decision Making 4 Decision Table 4 Figure 1. Decision table 5

Decision Making Under Uncertainty 5

Figure 2. Uncertainty decision 5

Optimistic 5

Pessimistic 5 Criterion of Realism 6 Equally Likely 6 Minimax Regret 6 Expected Monetary Value 7 Figure 3. EMV when no additional information was gathered 7 Figure 4. EMV with a favorable result from the additional information 8 Figure 5. EMV with an unfavorable result from the additional information 8 Figure 6. EMV from the additional information 9 Conclusion and Recommendation 9

References 10

Appendices 11 Analytical Experience and Plans 13 Executive Summary Management decisions have always been considered a difficult task especially ...

Part A: Multiple Choice Questions:

The seller must have market power, that is the seller must have some control over price The seller must be able to identify different customer groups with different demand elasticities The seller must be able to prevent arbitrage between the two groups All of the above You’ve just decided to add a new line to your manufacturing plant. Compute the expected loss/profit from the line addition if you estimate the following:

There is a 70% chance that profits will increase by $100,000.

There is a 20% chance that profits will remain the same. There is a 10% chance that profits will decrease by $15,000. Loss of $15,000 ...

Allen Hajek formulates his “Many Gods Objection” against Pascal's Wager. In his opinion, Pascal's Wager does not exhaust the relevant options regarding whether there is a Christian God or not. In this paper I shall defend Pascal's Wager against this objection. Hajek's objection to Pascal's wager can be reconstructed as follows. Hajek points out that (1)Pascal's either-or proposition is an oversimplification. (2) We could derive an infinite degree of expected utility from more than one religious option. (3) According to Pascal's Wager, we can either choose only one Christian God or not choose one Christian God (4) This ...

Definition of Binary Options

An option is a derivative contract where an investor possesses rights to purchase and sell assets such as commodities, foreign currencies, and common shares etc . There are two types of options like traditional, regular or vanilla options as well as binary or digital options. The market dynamics and mechanics for options contracts are same in every economy. The only difference relies in the manner in which options trading is regulated in each country. In derivatives, binary option represents a trading form where traders or investors predict movement in the prices of underlying assets, commodities and securities etc. The word “ ...

Bargaining over Strategies of Non-Cooperative Games

The article provides insight to the bargaining process that integrates the process of non-corporative game theory. To understand the applicability of non-cooperative games, the authors discuss the uniqueness, the efficiency, and existence of the agreement reached in the bargaining process. The article shed light to the broad perspective of the non-cooperative games involving two players by including several games that involve the Ultimatum Game, the Prisoner's Dilemma, the Trust Game, the Hawk-Dove Game. Using these two-player non-cooperative games, the author found that the bargaining process proposed result in Pareto-efficient settlements, which typically differed from the Nash equilibrium obtained in ...

Since millions of Americans don’t have jobs, if I were the president of the United States, I would apply various strategies to create employment opportunities. The best approaches would be increasing taxes on the wealthy, enhancing the payoff of university degrees, assisting small companies in securing foreign customers, creating a national jobs database and luring American companies to return their investments home. First, I would raise taxes on the wealthy. The richest people have more money than they need. Ideally, they have a lot of money idling in their bank accounts. Even the investments of these wealthy citizens ...

Report

The business projects are always associated with risks, and the owner has to make the decision. Typically, decisions that are more profitable are associated with higher risks. Therefore, the owner has to choose if he wishes to bear a risk and earn a lot, or he takes more secure, yet less profitable option (Koller). The High Right case has a significant advantage since the owner knows the risk probabilities associated with the decisions. The decision tree illustrates the outcomes of all the possible decisions (Fig. 1).Table 1 presents the payoff table, which illustrates the losses and profits.

* The ...

Real Options are concerned with expanding, delaying or abandoning a project or a business decision. A real option value depends on the expected value of the future cash flows. Important elements in real option valuation are the discount rate and the expected cash flows for various scenarios. Decision trees help in deciding the payoff for the options for different scenarios and thus help in deciding whether to exercise the option or not and when to exercise it (Bowman, and Moskowitz, 2001). Decision trees can be single staged or multiple staged. The value of the options to be determined dictates ...

The problem facing the organization is to select the optimal strategy regarding development and marketing decision for Ski Right Helmets. The options presented in the scenario from with the organization can select the optimal are five (5) in number. First option is partnering with Progressive Products (PP) to develop the product and share profits evenly; second option is giving the contract the making and marketing to Leadville Barts (LB) and Progressive Products (PP); third option is a combination of TalRad (TR) and Progressive Products (PP) to make the product; fourth option is contracting the production and distribution to Celestial ...

The paper is commissioned to conduct a numerical evaluation of the intrinsic stock price of Royal Mail and comparing it with the offer price. As part of this analysis, we will be using Price Multiple Method and Discount Cash Flow Method to arrive at a conclusion.

Price- Multiple Method

Also known as the method of comparables, this equity valuation method values a stock based on the average price multiples of stock of similar companies. The economic rationale behind using this valuation method is the Law of One Price which asserts that two similar assets should sell at similar prices. Henceforth, for this ...

Credit cards, Debit Cards and Credit score

Credit Cards Credit cards (usually plastic) assures a seller that the person using it has a satisfactory credit rating and that the issuer will see to it that the seller receives payment for the merchandise delivered. These are used to make payment in retail shops or stores present online. Credit cards are usually issued by banks or other entities approved by government. VISA and MasterCard are two prominent examples of bank-issued general purpose credit cards. On the other hand, many nonbank companies can also issue credit cards such as Discover, American Express, and Diners Club. Credit cards have many advantages ...

Introduction

Human interactions can be just like games. Game theory is an approach that attempts to analyze situations the same way players in a game assess situations. We face many situations, yet we do not have rules on how to handle them. Hence we wonder, what players would do if they were faced with the same situation. In a game, players make quick and strategic decisions that will help their team win. We handle real life situations just like players. The decisions we make affects our outcomes. Since we come in contact with people, game theory establishes how we can strategize with ...

Executive Summary

Saddle point approximation implementation and derivations have typically relied on tools such as Edgeworth expansions, exponential tilting, complex integration, Hermite polynomials, and other advanced notions. Saddle point approximations are very important tools used in obtaining accurate expressions for distribution functions and densities. It has been a very valuable tool in asymptotic analysis. Since the seminal paper by Daniels (1954), several techniques of accurate approximations that rely on the saddle point approximation on one way or another have been developed. The saddle point approximations, however, derived its concept from the game theory, which involved two suspected criminals under police investigations. The ...

Question 1

Suppose rock beats scissors in which case the points earned are two and not one, then we would expect a significant change to take place in the entire play. This would require that even for scissors and paper, the points be increased by an equal amount in order to ensure equilibrium in all cases. For the play to be interesting and highly appealing there should be fairness all round so that the winning parties usually get what the others would get if they were also to win. This makes the game more interesting and even reliable in making certain determinations, ...

International Finance Management

Reference list . Introduction Increasing participation in international trade exposes companies to the exchange rate risk. That owes to the possible loss of value in the amounts that are to be received for exports or the increase in the amount that has to e paid for imports. In that respect, companies need to apply strategies to manage the risk through various available techniques. In that view, this report presents a demonstration of those techniques’ application with reference to a company involved in payments and receipts of foreign currency. The report presents an analysis of the forward, swap arrangements and futures ...

Introduction

The conflict in Syria has raged on for over three years now with the various warring parties actively sustaining it. It began in early 2011 as a part of the series of demonstrations dubbed as the Arab Spring witnessed globally in a number of Arabic countries. The protests were aimed at the Bashar al-Assad led government that was dubbed as tyrant and retrogressive. After various crackdowns, these demonstrations evolved to deadly armed rebellions (Cole, 2013). The armed conflict pitted various opposition groups namely; Free Syrian Army and the Islamic Front against the Syrian government and its allies such as Hezbollah. The ...

Translation risk arises due to variance in exchange rate used in expressing the portfolio components in the books of multinational firms. The higher the portfolio components in the books of the company, the higher the translation risk. Bearing in mind, this kind of risk, several ways have been suggested, and most of them adopted to cushion the multinational against this type of risk. This article will briefly discuss the available ways of cushioning a company against this risk. This type of risks is mostly felt by companies that operated cross border businesses and particularly where a single currency is accepted ...

Literature Review

In some instances, the performance of the entire group is dependent on the effort that the weakest member of the group gives. For instance, the slowest member in a production line determines the speed at which the production line operates. In a coordination game where players simultaneously carry out a certain action, the playoff of the players is dependent on the effort of the said player and the smallest effort level of any of the players in the group. Coordination games are important to microeconomists. The belief is that economic growth can be impeded by low output equilibrium. Problems in coordination can ...

[Institution’s Name] The movie, ' The Princess Bride' is a fanatical fairy tale based on the novel by William Goldman. The book as by name is a romantic narrative, yet other elements of the tale enhance the reader's interest in the reading. This includes the fancy, fighting and decisive points, such the point when the outlaw Vizzini is offered two goblets of wine and must determine which one holds the poison. Herein, the writers utilizes the game theory to add in the interest of reader with logic and script. Likewise, in the referred movie a scene called battle of wits ...

Introduction

Since many kinds of sports are games, it is not surprising that examples from sports are often being used for illustration of classical problems from game theory, while game theory is, also may be applied to improve performance in sports (Chiaporri et al 12). Choice of direction of shots in tennis is often being used for understanding of mixed strategies, and, the other way around, mixed strategy have been used to explain how footballers might decide on where to spot the penalty kicks (and for goalkeepers – how to try to save them). At the same time, chess in itself ...

Similarly, the government should pay off students by funding their projects to help them get by through the school life. Most households or rather families cannot sustain their students at school with the high costs of maintenance as they lack the ability to finance their children or the ability to finance out-of- pocket costs of attending college. Therefore, much consideration has to be made where the sum of resources available or rather, savings, summer and part-time earnings, gifts and loans should be higher than the total out-of-pocket costs of attending college i.e. Tuition, travelling and all the other living ...

Nobel Prize in 2005: R. Aumann & T. Schelling <Student’s name> <University>

Aumann, Robert John (b. 1930) - Israeli-American mathematician and Nobel Prize winner in economics in 2005 (together with Thomas Schelling) "for his work on conflict and cooperation through analysis in the framework of the theory of games." Unlike Schelling Aumann worked almost exclusively mathematical analysis of game theory. Commenting on the award of the Nobel Prize in economics, he even said that in the economy as such understands not too deep. If Schelling studied mainly strategic cooperation of the conflicting parties ( ...

World economy is a complex unity of all local economies represented in the world. Due to the continuous processes of globalization and integration, whatever changes take place in one country, they are easily shifted into another area along with all related effects. That could be even compared to “the domino effect”. And it would be a very positive aspect if not for all the bugs and issues which evolve each day on every market, either local or global, influencing the overall situation in one country or the world economy as a whole. Quite many economic “viruses” can be recalled now as ...

Areport on Some of Factors That Associated With Rational Theory of Crime

Introduction Rational choice of theory of crime is where it is believed in the field of criminology that man is like a reasoning actor who looks at means and ends, benefits and costs then a rational choice is made basing on some of these factors.

Body

Some of the factors that gears one towards making such decisions include the following: Effects This is where it is believed that the effects of a crime are as a result of the choice made by the offender. Before one indulges in making any crime he weighs overall effects like the costs,benefits,risks among ...

The rational theory of crime advances the argument that first and foremost, man is a rational being. Consequently in making a decision, he will reason out the options available to him, examine the end and the means to be used to attain that end. Additionally, he also weighs the costs and benefits of the act he is going to undertake. It is only after one is through with process that he can be said to have made a rational decision or choice. In the context of criminology, the theory puts forward the position that a criminal will carefully weigh all the factors surrounding a ...

This is a theory that seeks to reveal the circumstances that make a person commit a crime. It a theory based on the principle of cost-benefit analysis. It argues that just like any other rational person, a criminal will have to calculate the costs and benefits of a crime.

Effect

This is a produce of an event. It is a key factor to a criminal. He will have to weigh the value of the incurred costs and the resulting effects. It is cardinal to take into account that a criminal commits crime as a beneficial activity. This is the basic assumption that is propagated by this theory. Therefore, a criminal will be ...

The rational choice theory is one of the theories of criminology, which seeks to explain the causes and motivation that lead to criminal behavior. The theory is premised on the assumption that a criminal is a rational individual, who will make choices that are beneficial to him under the circumstances. It argues that a criminal will make a cost-benefit analysis before engaging in criminal behavior. If the benefits outweigh the cost, then he will engage in them, and vice versa. This brief report will canvas some of the features that are critical in the theory.

Effect

Choices have consequences. When a person chooses to engage ...

Chapter four focuses on the victims’ nature and the soldier’s ability to kill. Soldiers can only kill when they have when there is sufficient pay off and relevance of the mission to kill. The author writes about the Shalit factors that determine a soldier’s ability to kill. They include the motive, means and opportunity. Soldiers determine the attractiveness of killing their target using three main factors. They include; payoff to kill, relevance of killing the victim and the relevance of the available strategies. The strategy employed by the soldier should be one that guarantees less risk. The ...

The sixth chapter focuses on the killing behavior of soldiers in combat. The author writes that soldiers cannot become aggressive on their own. They must be influenced by their leaders and the surrounding conditions. There are manipulating variables that have to be regulated to ensure the soldiers’ ability to kill remains desirable. If not regulated, the soldiers could become rogue, or they may become too sympathetic to fight the enemy. For soldiers to be ruthless on the battle front, they require authoritative leaders to give orders, demand respect and obedience. The soldier must also have a sense of belonging ...

Introduction

The decision tree method is a way that can be used in getting help to make good decision choices, particularly for those decisions which are associated with high risks and costs. This method uses a graphical approach in order to compare various alternatives by assigning specific values to each of the alternatives while considering the uncertainties, payoffs and costs as numerical values. This method is of great help to business analysts, project managers and any level of project decision maker. This method is helpful in a variety of field including but not limited to artificial intelligence, medical diagnosis, game theory, cognitive science, ...

A swap as a financial instrument refers to a notional principal contract in which one party undertakes to make payments to the other party using a specified variable rate, the notional amount. On the other hand, the other party undertakes to make regular payments, which would, be based on a different rate or index in application to the notional amount. In other words, swaps refer to derivatives in which the parties engage in the exchange of cash flows hence the term swap. The benefits inherent in a swap depend on the kind of financial instrument exchanged. The agreement of the swap includes the dates ...

Abstract

Ethics is one of the most important aspects in accounting yet most often it is misunderstood and misinterpreted in different organizations in an effort to suite their disclosure grounds. Many researchers have blamed various aspects to this trend. For example, some researchers have turned to the learning institutions as a blame for producing half-baked students who fail to meet fundamental entry to the employment industry. For this reason, the employers are forced to enroll these candidates into other classes in an effort to equip them for the workplace environment. However, since the organizations do not have all the time to ...

Discounted-Cash-Flow Analysis

Question 1 True, False, or Uncertain. Other things being equal, an increase in the volatility of the underlying asset will increase the value of the call option on that asset. Explain. It is true that when other things are held constant, an increase in the volatility of the underlying asset will result in an increase the value of the call option on the asset. . The price of a call option depends on the volatility of the underlying asset. Volatility of price refers to the tendency of the underlying asset price to fluctuate over time. There is a direct relationship ...

Question 1

Beta is a measure of a project’s risk relative to the entire market . There are several factors that determine the value of beta of a project when it is calculated from domestic stock index against the world stock index. They include; financial leverage, operating leverage and the nature of the project . Financial leverage is the amount of debt in a firm’s capital structure. Payment of interest on debt is a contractual obligation and is fixed. Fixed financing costs cause profits after tax of a project to vary with changes in sales and earnings before interest and tax. Financial leverage increases a project financial ...