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Random Variable

-assigning numbers/quantifying outcomes

Disrete Random Variable


-finite

*probability distribution:
-lists of possible values of variable and probability that each will occur, which should sum to 1

*cumulative probability distribution / cumulative distribution function / CDF


-probability that a random variable is less than or equal to a particular value.

*Expected Value of X or Mean of X or Expectation of X

or

-compute the weighted sum of all probabilities

*Variance

-same below with continuous random variable

Continuous Random Variable


-infinite

*Expected Value/Mean

*Variance

*Standard Deviation
*cumulative probability distribution / cumulative distribution function / CDF
-probability that a random variable is less than or equal to a particular value.

Probability Density Functions (for continuous random variable) (PDF, density function)
-probability that a continuous random variable be a certain number is zero (0)
-area of the under the pdf curve is the probability, and to get so, get integral between two numbers

Linear Function

Independtly distributed / independent random variables


-knowing the value of one doesn’t provide info on the other variable
-conditional distribution of Y given X equals marginal distrbution of Y

-then their joint distribution is the product of their marginal distributions

Covariance
-extent to which two random variables move together
-zero when random variables are independent

Correlation
-alternative measure of dependence bet X and Y

-between -1 and 1

Sums of Random Variables

𝜎𝑋𝑌=𝐸(𝑋𝑌)−𝐸(𝑋)𝐸(𝑌)
e.g.
n two numbers
Uniform Distributions
f(x) = 1/(b-a) -has a constant f(x)
-continuous

distribution: x

-to calculate the probability that sample is bet c and d, calculate the shaded area.
Area if a rectangle is = (L x W) OR (B x H)
Base is the diff between d and c, while height is equal to f(x)

Exponential Distribution
-distribution starts at y intercept (or the maximum value, or lambda)

-continuous
- to calculate probability that sample is less than a (in graph, shaded blue), this is the area to the left of a
Area to the left = cumulative distribution function
= P (X<x) or P(X<a)

Area to the right


= P (X>x) or P(X>a)

-to calculate that probability that x is between b and c (red region)

= P (b<x<c) = P(x<c) - P(x<b)


Normal Distribution vs Sampling Distribution

to calculate prob that X<a in a normal distributi

-used to calculate z score


and then get z value from

to calculate prob that X<a in a sampling distrib

-used to calculate z score


* note that z table gives prob to the left. If you

> when asked what is the distribution for the mean sample:

> when asked to find the XXth percentile for the mean sample:
e.g. 80th

to get the answer, that is the area to the left Xbar, which

-find the z value from z table using .80 as reference, you'l


*if we are analyzing just one sample, the population distribution is used
* if we are analyzing more than 30 samples, samping distribution is normal, whatever the pop dist is.

Bearnoulli Distribution
- for discrete random variables
-outcomes are binary (0 or 1)

*Expected Value/Mean
E (G) = 1 * p + 0 * (1-p)
=p

*Variance

Other measures of shape of distribution


*skewness
-measures lack of symmetry
- zero (0) when there is symmetry
-negative when distribution has long left tail
-positive when distribution has long right tail

*kurtosis
-heaviness / thickness of the tails
-measures how much variance of X arises from extreme values/outliers
-the greater the kurtosis, the more likely are outliers

* for a normally distributed random variable, kurtosis is 3


leptokurtic -if more than 3, more mass in tails

Joint Probability Distribution


-two discrete random variables
-all prob sum to 1
function: Pr (X = x, Y = y)

Marginal Probability Distribution


function: Summation of Pr (X = x, Y = y)

Conditional Distribution
-distribution of random variable Y conditional on random variable X taking a specific value.

function: Pr(Y=y|X=x)

*Conditional Expectation/Mean
-weighted prob

*Conditional Variance

Normal Distribution
-continuous random variable
X~ N (u,o^2)
-to look up prob of normally distributed variables, we standardize (z) the variable:
68
z = (x-u)/o -standardized version of X z -1
0.5 =norm.dist 0.158655
after getting value of z, plot thru the z table (which is value to the left of z value =normsdist 0.158655

*standard normal distribution


-where random variables are Z
mean (u) = 0
variance (o^2) = 1

X~ N (0,1)

Chi-Squared Distribution
-for testing hypothesis
- sum of m squared independependt standard normal random variables.
m = degrees of freedom of chi-squared distributions

->chi-squared dist with m degrees of freedom observed vs expected value ^


=W calculated chi square value ^
^compare with chi square critical value
-skewed
Student t Distribution
-standard normal random variable
'-Z and W are independent

-used when population standard deviation is not known


-sample standard deviation is given

-also when sample size is small (less than 30)

F Distribution

Poisson Distribution
-disrete occurrences among a continuous domain
-mean = variance
-mean and variance = λ
Probability:

or
Binomial Distribution
-discrete occurrences among discrete trials
for (nx) =>

where:
P(x) probability of x
p probability of successful event per trial
q probability that event fails per trial
n no of trials
x succesful events

*to get probability that x is < or > some value, get prob of each and sum
e.g. P(X<5)= P(1) + P(2) + P(3) + P(4)

To get mean and standard deviation

mean = np
SD = sqrt(npq)
t X<a in a normal distribution

-used to calculate z score


and then get z value from z table to get prob

t X<a in a sampling distribution

-used to calculate z score


ves prob to the left. If you want to get prob to the right, subtract it from 1

ea to the left Xbar, which is .80

ing .80 as reference, you'll get z value of .84


pop dist is.
82
1
0.841345 0.682689 0.670176 -0.329824
0.841345 0.682689

o 23 16 14 19 28
e 20 20 20 20 20
0.45 0.8 1.8 0.05 3.2 6.3
quare critical value

T distrbution / value

EBM:

to get population mean given sample mean and sample standard deviation T value excel formula:
2.093024 -1.833113
-2.093024 1.833113
T distrbution / value
Confidence Interval

cel formula:
Student t Distribution

to get value of t, given probability =T.INV.2T(0.05,19)


to get value of t, given probability =T.INV(0.025,19)
T CRITICAL VALUE -2.82143792502581

Normal Distribution (z)


=NORMSDIST(z)
to calculate probability using x =NORM.DIST(x,mean,standard dev, true)
for a popultaion, to compute probability

for a popultaion, probability is given, to compu=NORMINV(probability, mean, standard dev)

to calculate probability using z score =NORM.S.DIST(z,TRUE)

to calculate z critical value at normal distr =NORMSINV(z)


to calculate z critical value =NORM.INV(prob,mean,SD)
Chi-Squared Dist
=CHISQ.DIST(x,df,cumulative)

=CHISQ.INV.RT(prob,DF)

=CHISQ.INV(prob,DF)
F-Distribution =F.DIST(x,df1,df2,true)
-use alpha 2.063899
-use alpha/2
n-1

-to the left of z


Cumulative is TRUE - for CDF (probability that x will be at OR below that value) #NAME?
Prbability/Area below/at 83
-area to the left
Cumulative is FALSE - to find prob that value will exactly be X)

*probability at or below x value

prob to the left at z

prob = significance level


area to the right
prob = confidence level
area to the right
T distrbution / value
Y-hat -the only line that minimizes sum of squared erros
Y-bar -sample mean
Estimate:

Linear Regression Notes

* Test of Significance

Excel formula for two tailed critical t value


=T.INV.2T(prob, df)
e.g 2.093024
Compute t statistic:

Compare t statistic to critical t

Measures of Variation

TSS = SSR+ESS
Once you get r^2, this explains the percentage of variation in Y that is explained by X.
But there is still need for test of significance.
get the F-ratio

2.866081

compare f value with f critical value (from table) if F>Fcritical, reject null hypothesis
or
Compare F value and p-value (significance F in anova table)
since p value is less than alpha 0.05, reject 0.05

Multiple Regression:
`

4.56
20.7936
* High SSE, low R^2
* Low SSE, high R^2
*r^2 provides fit of the model
*r^2 is the coefficient of determination
*One tailed vs. Two tailed Test

Two tailed test


-when you test alternative hypothesis wherein it doesn’t equal a value

> In a two tailed test there are rejection region and acceptance region.
The shaded areas/rejected region are borderered by z, which are also called critical values.

> confidence level and significance level (alpha) are complementary (sum equals to 1)
In two tailed tests, alpha is divided to 2 for each rejection region

> Compare computed z values vs. z critival values (from table)


If Z value is greater than critical value, reject Ho

One Tailed test


> alpha is not anymore divided to two

> Left tailed test


-if alternative hypothesis states that mean is LESS THAN a number
> Right tailed test
-if alternative hypothesis states that mean is GREATER THAN a number

P-value method for Hypothesis Testing

If P-value is LESS THAN (<) alpha, reject Ho.


If P-value is GREATER THAN (>/=) alpha, accept Ho.

- the area of the shaded region is computed and compared to the alpha
-use z value to determine area
-area that you will get from the z table will be the area from left to postive z value' ->
-calculate area on the right (1-z value)
-p value is total of two shaded sides
-compare p value to .05 (alpha)
-if its less than, reject Ho

The t - Statistic

where:
*for large n (under central limit theorem), distribution of t approaches N(0,1)

T Test or Z Test?

T Test
-if we know standard deviation and sample size is less than 30.

Z Test
-if more than 30
Hypothesis Test for the Population Mean (u)

> o (pop standard dev) is known


-use Z test

z test

z statistic

where o is pop deviation


but if not known, we can use sample de

-if null hypothesis is true, then random variable has standard normal variable

*Rejection Region Approach


-choose a value for alpha (a) or the significance level of the test
-apha - the probab of rejecting the null hypothesis if it is true (type 1 error)
-find rejection region and reject Ho if test statistic falls in it
=if two tailed test, divide alpha by 2 , e.g. a=.05/2 or 0.025
=find the corresponding z critical based on the values within the z table = 1.96
=through the formula above, compare z value vs z critical

*P-value Approach
-measures strength of the evidence against null hypothesis
-standard normal distribution
-measures area
-smaller p value = the greater evidence against null hypothesis
-reject Ho id p-value < or = alpha

0.10565 0.2113

> o (pop standard dev) is not known


-use t test
- and n is small

confidence interval
two sided confidence interval
-there is a direct relationship between confidence interval and hypothesis testing, also true if confidence
-do not rejedct Ho
-compare hypothesized value vs the interval
-should be same with p value
critical value of z:
-1.959964

s pop deviation
known, we can use sample deviation/sqrt of n, only if n>30
testing, also true if confidence interbal rate and alpha are complementary
Central Limit Theorem
- if n is large enough( n>=30)
-if we collect samples of size n from a population, calculate mean of each of those samples and plot those means, graph will ap
-if sample size is large enough, the sample distribution will approximate a normal distribution.
-graph will have a shape of normal distribution, even if we don't know the distribution of population
-use z table for probability calculations
-to get the probability that a sample is somewhere betweeen a and b, use z table to get the area under the curve.

Law of Large Numbers


-as you increase the sample size, the sample mean will approach the mean of population
-as you increase the sample size, the mean of sampling distrbution will approach the mean of population

for population:
where: x random variable
u population mean
o population standard deviation

for sampling distribution:

where -as you increase n, standard error decreases, data

>when n is large, we can use the population mean as the sample mean (u sub x bar)
plot those means, graph will approximate a normal distribution.

under the curve.

tandard error decreases, data will be less spread ->


Session 3: Simulation and Linear Programming

1. To compute covariance

Period X Y X-Xbar
1 1.96 1.46 -0.308
2 1.59 1.68 -0.678
3 0.36 1.07 -1.908
4 2.63 3.99 0.362
5 2.97 2.35 0.702
6 3.25 2.27 0.982
7 3.98 2.51 1.712
8 1.24 1.47 -1.028
9 1.24 1.68 -1.028
10 3.46 2.17 1.192
Mean 2.268 2.065
Covariance 0.59316666667 0.620437923086795
*correlation = cov/standard dev
*positive correlation - values move together

2. Simulation of Stock Prices

Probability Price Change (Quarterly) Lower Random


0.05 (2.00) -
0.10 (1.00) 0.05
0.25 - 0.15
0.20 1.00 0.40
0.20 2.00 0.60
0.10 3.00 0.80
0.10 4.00 0.90

Period Random Number =rand() Price Change


-generates random number from 0 to 1
1 0.0635 -1
2 0.3192 0
3 0.8880 3
4 0.3240 0

3. Gaussian Random walk?


-assume that change for the next value is based on normally distr random variable between 0-100
-normal distribution Flippoing a coin
Time Value Time Value
0 100 0 0
1 99.8322 1 -1
2 97.44526 2 0
3 97.32714 3 1
4 98.8667 4 2
5 98.46942 5 1
6 99.50909 6 2
7 99.13819 7 1
8 100.9541 8 0
9 100.8223 9 -1
10 100.8068 10 0
11 101.5374 11 -1
12 100.9501 12 -2
13 101.5167 13 -1
14 99.8508 14 -2
15 101.0315 15 -3
16 100.424 16 -2
17 100.9511 17 -1
18 99.58488 18 0
19 100.5442 19 -1
20 100.8603 20 -2
21 101.2376 21 -3
22 100.612 22 -4
23 101.6517 23 -3
24 102.0313 24 -4
25 103.0552 25 -3
26 104.4776 26 -4
27 103.9539 27 -3
28 104.4411 28 -4
29 106.5047 29 -5
30 107.723 30 -4
31 108.1245 31 -5
32 108.1687 32 -4
33 108.8329 33 -3
34 107.7673 34 -2
35 107.8326 35 -1
36 106.1515 36 -2
37 106.3058 37 -1
38 105.1842 38 0
39 104.4914 39 -1
40 102.9869 40 -2
41 103.1777 41 -3
42 102.8945 42 -4
43 105.3629 43 -3
44 106.3661 44 -4
45 104.9706 45 -3
46 106.2743 46 -2
47 107.816 47 -3
48 108.3963 48 -2
49 108.3328 49 -1
50 107.6513 50 0
51 106.8392 51 -1
52 106.758 52 0
53 108.5338 53 -1
54 107.8119 54 -2
55 105.7366 55 -1
56 107.2469 56 0
57 107.2829 57 1
58 107.178 58 2
59 107.3253 59 1
60 108.1953 60 2
61 109.0192 61 3
62 108.0073 62 4
63 107.101 63 3
64 106.5508 64 2
65 107.5603 65 1
66 108.8115 66 2
67 109.5493 67 1
68 109.3953 68 2
69 107.8336 69 1
70 109.0164 70 0
71 107.8 71 1
72 109.0952 72 0
73 108.4958 73 -1
74 108.1134 74 0
75 107.0937 75 1
76 106.0689 76 2
77 105.5037 77 3
78 105.0019 78 2
79 105.655 79 3
80 104.2805 80 4
81 103.6794 81 3
82 104.5589 82 4
83 103.6128 83 3
84 103.9154 84 2
85 103.4787 85 3
86 103.7139 86 4
87 103.4462 87 3
88 103.4363 88 4
89 102.7604 89 5
90 101.7757 90 4
91 100.0785 91 3
92 99.83953 92 4
93 100.7373 93 5
94 102.6968 94 6
95 103.7194 95 7
96 103.4245 96 8
97 103.5125 97 7
98 104.0394 98 6
99 103.519 99 7
100 105.2057 100 8
Y-Ybar F*G
-0.605 0.18634
-0.385 0.26103
-0.995 1.89846
1.925 0.69685
0.285 0.20007
0.205 0.20131
0.445 0.76184
-0.595 0.61166
-0.385 0.39578
0.105 0.12516 To manually compute covariance
0.593167 *10-1 (because sample)

Upper RanPrice Change (Quarterly) Expected Value/Period


0.05 -2 1.1 -expected price change after 1 period
0.15 -1
0.40 0
0.60 1
0.80 2
0.90 3
1.00 4

Stock Price Expected Price after 4 periods


50 (given) 54.4
49
49
52
52

Value
115
Value
115

110

105

100

95

90
0 3 6 9 121518212427303336394245485154576063666972757881848790939699

Value
10

0
0 3 6 9 12 15 18 21 24 27 30 33 3639 42 45 48 51 54 57 60 6366 69 72 7578 81 84 87 90 93 96 99
-2

-4

-6
Prob
0.15 0 0.15
0.2 0.15 0.35
0.3 0.35 0.65
0.35 0.65 1

Day
1 0.83 0.02
2 0.11 -0.01
Daily Rate
-1%
0%
1%
2%

51.40
52.428
51.90372
4.Pricing of Options

S_o - initia K - strike price r-risk free rate (mean)


50 50 0.05
*Call Option - option to buy a stock for a certain price at a certaind ate
PV of the Payoff from a Call Opion
1 40.1014260616797 0
2 40.1014260616797 0
3 46.0799034426491 0
4 40.6870654791434 0
5 60.1328657609579 9.88268441391473
6 49.3902400492681 0
7 71.704782300364 21.1688893159621
8 32.854630846565 0
9 44.9515014229357 0
10 38.4020475605808 0
11 50.7088311899208 0.69133008548456
12 51.8585867831708 1.81269811199138
13 41.6856705525957 0
14 35.4344432820288 0
15 47.207983435586 0
16 65.5209703591379 15.1377562355652
17 40.6524541793509 0
18 42.995669186404 0
19 48.7903564048559 0
20 64.9363743419556 14.567593945475
21 32.6695693182895 0
22 35.5345446893839 0
23 52.8077875154669 2.73846299470423
24 53.1109295781202 3.03412045316274
25 71.8387965442587 21.2995947363856
26 41.5533795328263 0
27 53.1530213719855 3.07517299693466
28 53.3361855404377 3.25381482595452
29 34.4017446054329 0
30 68.3715555685367 17.9179602453731
31 39.6138423308836 0
32 64.8774044662831 14.5100800412205
33 49.9538129949278 0
34 34.5645863891937 0
35 42.3610975139601 0
36 56.8226344752989 6.65418302990524
37 40.4180559078385 0
38 61.6995969505813 11.4107328726384
39 45.8934552681799 0
40 44.144337907917 0
41 52.6246646767775 2.55986147501171
42 51.3067492669602 1.27448551260208
43 52.7086060435571 2.64173032206105
44 41.0016049633959 0
45 50.4927533190734 0.480587196277106
46 52.4089387022552 2.34946179377817
47 46.7880797000628 0
48 57.321702627927 7.14092914594113
49 65.7791513364738 15.389562701858
50 43.5710974286765 0
51 78.9389863496716 28.2244802308873
52 56.4294621948165 6.27071820761601
53 36.2542828425549 0
54 53.9260794670671 3.82914421964143
55 50.8517045928149 0.830675931492452
56 45.1870723852787 0
57 39.8247173252636 0
58 37.6499390770322 0
59 40.6680747502048 0
60 73.1282050895161 22.5571676712291
61 45.4987947649898 0
62 59.549417063762 9.31364111637959
63 63.0729786201835 12.7502056279994
64 57.5099458905611 7.32452466586072
65 50.4477695505903 0.436714080995193
66 69.7316043342019 19.2444292873683
67 57.1058563471724 6.93041212884664
68 36.6198223812361 0
69 59.1150846018545 8.89003236116549
70 49.7736002023045 0
71 55.9491865310794 5.80230059226723
72 61.2891530865957 11.010422903762
73 59.4384707480602 9.20543407497263
74 60.9092332132169 10.6398832854791
75 42.4564385677797 0
76 64.9999181594981 14.6295688605722
77 38.6865106585012 0
78 50.1682913601521 0.164136231665028
79 47.5188892769528 0
80 56.1165917735663 5.96557258459016
81 52.7450746387789 2.67729850445864
82 63.8562290542493 13.5141175399443
83 45.7028370994812 0
84 35.2516067047085 0
85 51.6024932078586 1.56292750958259
86 57.3700634641916 7.18809594890394
87 71.4902623590462 20.9596658908671
88 56.5029746169046 6.34241560153571
89 55.9006632017665 5.75497530822368
90 53.4666825793463 3.38108988149235
91 46.7870890253159 0
92 61.0678476781622 10.7945815453314
93 45.4733199034081 0
94 55.7933982960657 5.65035878248088
95 56.9965296772333 6.82378474400606
96 62.3109488389721 12.0069904291232
97 68.6467698371118 18.1863794494461
98 38.4585779948102 0
99 50.59147071452 0.576867250545843
100 62.1557222105692 11.8555963598311
101 55.5610663476831 5.42376313034255
102 56.690428186878 6.52524092637582
103 33.7366968778579 0
104 76.5265006643188 25.8715590293363
105 53.9561904632071 3.85851177263785
106 44.395646438993 0
107 63.7690307157041 13.4290721360487
108 36.8523070892763 0
109 45.6232764774552 0
110 63.1348688330011 12.810567766018
111 49.1317342617424 0
112 61.0816088894789 10.8080029911301
113 39.5434884763691 0
114 60.0724294907356 9.82374032052092
115 57.2412630371464 7.06247561573327
116 67.4849688221413 17.0532634037407
117 50.2387545112417 0.232859641355511
118 57.7362500545249 7.54524136010786
119 52.4490096990882 2.38854343417425
120 45.2896392944116 0
121 81.3806160999449 30.6058259278322
122 44.4862048371903 0
123 35.1286086536265 0
124 46.7731171266008 0
125 49.5612144018468 0
126 51.637222153603 1.59679899460136
127 39.2807044523786 0
128 49.6490143591564 0
129 41.046490214212 0
130 48.1721807889389 0
131 39.9038314378709 0
132 48.4049301826898 0
133 46.9712557684765 0
134 47.199102867379 0
135 52.9945798304367 2.92064339098508
136 60.1605105524948 9.90964665311664
137 40.5200071219646 0
138 51.2149977582852 1.18499935674777
139 52.4816435059347 2.42037150945887
140 57.6290069207711 7.44064606876081
141 41.289806326864 0
142 57.501760838504 7.31654170345892
143 40.1548855221316 0
144 42.2976138456413 0
145 45.1239079624001 0
146 77.0934690989757 26.4245289634643
147 61.7162720224961 11.4269962355607
148 46.440474587818 0
149 60.5403034281199 10.2800624092315
150 59.9466018688484 9.70101939368739
151 44.030460255062 0
152 56.0265193124519 5.87772402046451
153 44.3526016039387 0
154 44.217196003188 0
155 42.929179425911 0
156 51.0448609858274 1.01906327616915
157 60.862739250652 10.5945372629401
158 59.2071791715189 8.97985310780322
159 41.2214848408962 0
160 45.0636108208847 0
161 66.409280140467 16.0041335702472
162 68.792190715687 18.3282098737363
163 35.7351044917357 0
164 60.5294678144396 10.2694943278063
165 47.1358495341964 0
166 41.7514339421137 0
167 42.7324309845226 0
168 54.9051186037049 4.78401079386799
169 50.0532934947979 0.051977673722973
170 57.2232928904181 7.04494915350854
171 59.4697260599784 9.23591769048993
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726 38.3072925220999 0
727 51.1295112001806 1.1016234692832
728 45.0725759864855 0
729 55.7161504187323 5.57501816203455
730 48.3689796480881 0
731 59.5822272851967 9.34564125056071
732 45.6384978690843 0
733 45.3579894668786 0
734 59.2148780331124 8.98736188382671
735 58.9729531168468 8.75141011502619
736 39.4620392108832 0
737 56.4428964227848 6.28382074331389
738 42.2422350332898 0
739 56.6877742033461 6.52265246993086
740 69.488949735183 19.0077658517459
741 56.7655734525743 6.59853084885148
742 53.2173978311388 3.13795999564811
743 37.622728253472 0
744 67.458414610855 17.0273648182672
745 69.2285268425578 18.7537728232495
746 43.4077937696376 0
747 49.4556256268438 0
748 55.6299327983765 5.49092926231005
749 53.4610223897242 3.37556944244998
750 57.6834502763799 7.49374521313013
751 42.4625884161923 0
752 48.9995785579698 0
753 71.4309471749695 20.9018152039033
754 72.6129441197117 22.0546285400976
755 44.9676073174261 0
756 59.3840747305457 9.15238109991586
757 46.7244942592156 0
758 50.9518842944871 0.92838218751738
759 52.4189558096877 2.35923157794689
760 44.9061242890441 0
761 74.0449099820269 23.4512390392998
762 40.7607235682793 0
763 40.1437515480232 0
764 62.6451670417579 12.3329567550804
765 63.5128307885775 13.1791978076613
766 62.7925898325638 12.4767396642124
767 56.3401385532847 6.18359997465158
768 45.8779562463826 0
769 84.1614821776777 33.3180321774683
770 53.0913166472541 3.01499176728509
771 48.1611682964069 0
772 50.4888228673998 0.476753787801168
773 45.0489667754162 0
774 44.7172521860362 0
775 61.7993440180121 11.5080171761994
776 48.7124832081804 0
777 42.1085037006278 0
778 55.213802146466 5.0850729128029
779 56.838194515866 6.66935889170192
780 43.5594512417634 0
781 44.7871477342765 0
782 47.231111348478 0
783 59.8706107963727 9.62690454747615
784 37.2322592059832 0
785 45.4862725361341 0
786 43.6551338862362 0
787 36.1020142127221 0
788 45.8330662297502 0
789 69.5827662688715 19.0992660469644
790 80.109476302272 29.3660706835881
791 65.377339801838 14.9976719293603
792 56.1419071391704 5.99026291159051
793 53.1099412790354 3.03315655526931
794 43.7998560326829 0
795 75.4322993893566 24.8043736801116
796 33.4027306752133 0
797 53.0925843855677 3.01622820502824
798 47.3361384048555 0
799 45.3008023881109 0
800 31.0766447169394 0
801 57.6931235611433 7.50317966364173
802 35.5608289972526 0
803 64.3411498618352 13.9870656101316
804 50.9008256758115 0.878584210628533
805 40.3409084034099 0
806 42.1601920234366 0
807 35.7382062411821 0
808 54.7699118829155 4.65214233890918
809 50.977659599937 0.953521098408251
810 51.9839791198173 1.93499450081509
811 45.8492225076324 0
812 63.9759478375725 13.6308804559754
813 60.1538340899141 9.90313503298442
814 41.0802525524943 0
815 74.790962655909 24.1788716070323
816 45.0612760614658 0
817 62.7645902278275 12.4494313721802
818 55.1221342789623 4.99566833301199
819 58.4268978071772 8.21883695898977
820 38.6291111301772 0
821 59.0116338602401 8.78913582746232
822 68.8649905629944 18.3992122864094
823 51.105573976052 1.07827725732405
824 65.3764281972643 14.9967828323838
825 52.3084480193505 2.25145223467476
826 36.3332442740282 0
827 59.6138426410414 9.37647602048834
828 39.3781784134186 0
829 46.9669959135551 0
830 49.895342807552 0
831 33.0624963515819 0
832 49.266657765734 0
833 55.5530216292039 5.41591703667029
834 46.7785754742656 0
835 54.8933113126353 4.77249502585358
836 65.2119498499661 14.8363654699499
837 55.2339533865723 5.10472661701821
838 57.0526823120159 6.87855096529596
839 28.7252380798484 0
840 64.3288288191426 13.975048775067
841 69.6012784441742 19.1173211550304
842 41.8349597236264 0
843 53.2426751111175 3.16261317736044
844 58.2586162586539 8.05471029670352
845 59.9994900926812 9.75260180262111
846 62.3077889878987 12.0039085950508
847 63.0359751815914 12.7141158075614
848 58.7528507886528 8.53674213267807
849 47.6506371741729 0
850 51.539429284955 1.50142064048333
851 56.7800277633475 6.61262828142011
852 57.4235163644114 7.24022909231493
853 45.4868773908071 0
854 43.8216253435838 0
855 51.6764475530976 1.63505591553175
856 34.2631092759254 0
857 48.3472577345194 0
858 66.7858031192078 16.3713601635195
859 53.3753421495976 3.29200465498953
860 38.6620066463434 0
861 48.7093563167478 0
862 63.8770404020705 13.534415053757
863 45.6035085981942 0
864 42.4208538344985 0
865 55.1905453952739 5.06239037284361
866 56.6475400732753 6.48341172407094
867 35.5686395651396 0
868 45.3511160815568 0
869 43.1968887743508 0
870 67.2367502857424 16.8111734048418
871 50.1151462056988 0.112303235750492
872 60.6448646792941 10.3820420339158
873 66.9340025825484 16.5159005690729
874 55.4290607050019 5.29501671859188
875 30.2612000364599 0
876 62.4930541965478 12.1845995894002
877 52.4273539804729 2.36742239715667
878 50.5963452468062 0.581621430201022
879 57.3221992526211 7.14141350892776
880 66.2094766662814 15.8092632614162
881 39.088544431002 0
882 47.0943738226012 0
883 36.5758886460188 0
884 64.2821901727364 13.9295616409435
885 44.7055938460891 0
886 39.3641777666899 0
887 58.4684733678846 8.25938601544585
888 42.2099936761895 0
889 42.4322852522563 0
890 36.1972920072482 0
891 60.6755248456609 10.4119451980778
892 39.9193718026655 0
893 58.0380832754515 7.83962229225696
894 47.6407230612404 0
895 45.2038973596722 0
896 63.9998374084904 13.6541801912857
897 59.7812555330063 9.53975547342302
898 56.6374575226428 6.47357811250051
899 49.87727965102 0
900 57.3698386197568 7.18787665589798
901 38.5683942397446 0
902 69.424522132021 18.9449289717738
903 55.0712322569451 4.94602308639635
904 69.8017900318189 19.3128820939368
905 37.9279379735141 0
906 53.7310066839625 3.63888780071256
907 78.7049415749651 27.9962140422576
908 59.8514473401145 9.60821423863887
909 91.1158484650556 40.1006945494237
910 52.743311017101 2.67557842675515
911 46.844205733958 0
912 66.3961532628893 15.9913307964317
913 63.840532826765 13.4988088536974
914 42.515587037153 0
915 37.9153870352417 0
916 71.3073851374683 20.781303923978
917 56.3273421516259 6.17111951727545
918 46.4517043515976 0
919 55.170378097139 5.04272100707389
920 38.9262144240063 0
921 54.7157059343445 4.59927473997703
922 74.4338282028295 23.830554835017
923 43.076372027026 0
924 45.3354982974288 0
925 43.5170005878016 0
926 46.5197851374739 0
927 45.439237772858 0
928 52.6708357938519 2.60489262314384
929 43.3875987901843 0
930 56.0128931064601 5.86443424669738
931 51.6304029967854 1.59014820336554
932 75.1811404389562 24.5594158662915
933 47.4410778446151 0
934 49.7734565125717 0
935 48.5948722130196 0
936 51.1605129238578 1.13185975767552
937 51.848785461829 1.80313878613572
938 46.101858830378 0
939 45.9453313097004 0
940 38.6642651153474 0
941 67.1781521893537 16.7540221006079
942 48.2994927095461 0
943 72.5298287237541 21.973565270578
944 47.7763127526384 0
945 44.7919120257669 0
946 41.4467312361438 0
947 49.9761864133845 0
948 39.8160859350372 0
949 41.3773589363521 0
950 69.5912849089026 19.1075743610238
951 51.5164352368319 1.47899431743121
952 29.9462939809738 0
953 57.9373905066774 7.74141563680203
954 31.2059372843006 0
955 61.1750163889162 10.8991042511891
956 43.8744586175667 0
957 49.2141110656293 0
958 68.1769680798378 17.7281771388884
959 76.5917026018698 25.9351511253132
960 49.4766312706088 0
961 52.3472128442953 2.2892599526814
962 38.1998268793061 0
963 36.5974354357405 0
964 35.0956566461958 0
965 62.700503336896 12.3869267922236
966 44.8216835498197 0
967 36.0633988718687 0
968 39.0178490899502 0
969 64.4809927387034 14.1234557540678
970 64.3703016739033 14.0154976613953
971 53.7782017514289 3.68491761781139
972 47.176707040464 0
973 66.4278686329136 16.0222631111799
974 67.9006935641021 17.4587238652505
975 54.2871749836632 4.18132425616659
976 44.8484102571321 0
977 75.3543494684359 24.7283483495958
978 47.5546823550406 0
979 61.0073424562509 10.7355702026718
980 38.970087515753 0
981 52.0664892651867 2.01546746343668
982 53.2213303672024 3.1417954370504
983 43.8358458083307 0
984 42.3921039268875 0
985 75.1140530772451 24.4939848974428
986 45.2254484112747 0
987 42.0435708299651 0
988 41.8015394149308 0
989 50.3930698024914 0.383364874488836
990 63.7646851779422 13.4248338899965
991 55.4732693364752 5.33813383506504
992 35.2418113245642 0
993 40.1781441198042 0
994 62.9167766879019 12.5978603351672
995 40.4933540721509 0
996 46.9300896277113 0
997 61.9026413171668 11.6087640559508
998 61.6673340455993 11.3792665416186
999 47.8120969924486 0
1000 48.1712630840589 0
sigma - volatility of the stock T ( 6 months)
0.3 0.5 -price change of a stock after one period
k for a certain price at a certaind ate
*if after 6 months, value of stock is less than 50, you will not b
*if after 6 months, value of stock is = 50, you will buy the stoc
Mean 4.931855 -approximate price of call option
SD 7.547044
*in this, epsilon is random variable that is normally distributed

ock after one period

ck is less than 50, you will not buy the stock/not exercise option
ck is = 50, you will buy the stock/exercise option
Solver

Max Obj =.026X1+.0509X2+0.0864X3+0.06875X4+.078X5

Constraints: X1+X2+X3+X4+X5 <= 12


-0.4*1-0.4*2-0.4*3+0.6*4+0.6*5>=0
-0.5X1-0.5X2+0.5X3>=0
0.1X1+0.07X2+0.03X3+0.05X4+.02X5<=0.04(X1+X2+X3+X4+X5)

Type of Loan Interest Rate Bad-debt Ratio


X1 Personal 0.14 0.1
X2 Car 0.13 0.07
X3 Home 0.12 0.03
X4 Farm 0.125 0.05
X5 Commercial 0.1 0.02

Variables X1 X2 X3 X4 X5
Values 0 0 7.2 0 4.8 Return
Net return 0.026 0.0509 0.0864 0.07 0.078 0.99648
Constraints LHS
1 1 1 1 1 1 12.00
2 0.4 0.4 0.4 -0.6 -0.6 (0.00)
3 0.5 0.5 -0.5 (3.60)
4 0.06 0.03 -0.01 0.01 -0.02 (0.17)
2+X3+X4+X5)

Sign RHS
12
0
0
0

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