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September 25th, 2008, 10:28 AM  #1 
Newbie Joined: Sep 2008 Posts: 20 Thanks: 0  Probability task  please help me
U're a shop assistant and U sell the gold. I wanna buy from U 100 kilograms of gold, but I don't have to do it. I know, that the price can change after one day. So I would like U to establish/agree on the price now. I will go to U tomorrow and I'll buy gold for today's established price. It's true, that I always can profit from this operation. So u said that I should pay today some amount of money. Let's mark the var X as amount of that money. X will be the expected value of the profit made by me. I pay for U today X money and I agree on with U the price I'll buy gold tomorrow. If I come tomorrow, U will give me the gold for the price, we agreeded on. If I don't come, U will give me nothing (U don't give me back the X money too). We know, that today the price of gold is 80$ The price could decrease to 60$ tommorow (with probability 1/2) or it could increase to 120$ (with probability 1/2) WE agree on, that tomorrow, U will sell the gold for me for 82$. How much should be the X value? Answer: X=19 Could U explain me why the correct answer is 19? If U don't understand my translation of task, please write here, i'll try rewrite it Thanks in the advance 
September 25th, 2008, 01:49 PM  #2  
Global Moderator Joined: May 2007 Posts: 6,823 Thanks: 723  Re: Probability task  please help me Quote:
To put it another way you are betting 19. If you win you get 38. If you lose you get 0.  
September 25th, 2008, 03:41 PM  #3 
Member Joined: Aug 2007 Posts: 93 Thanks: 0  Re: Probability task  please help me
19 is not quite right because of the time value of money the answer is the present value of 19 (which at a 1day interval is very close) 
September 26th, 2008, 04:07 AM  #4 
Newbie Joined: Sep 2008 Posts: 20 Thanks: 0  Re: Probability task  please help me
ok, now i understand the part of this solution. I know what should I do when the probability of increasing and decreasing is the same (1/2). But what should I do with this task: We know, that today the price of gold is A The price could decrease to B tommorow (with probability 1P) or it could increase to C (with probability P) WE agree on, that after D days, you will sell the gold for me for Q How can i answer this? 
September 26th, 2008, 06:18 AM  #5 
Member Joined: Aug 2007 Posts: 93 Thanks: 0  Re: Probability task  please help me
what you are describing is a call option The value of the option is the present value of the expecation at the maturity of the contract This might be helpful: http://en.wikipedia.org/wiki/Option_(finance) 
September 26th, 2008, 08:18 AM  #6 
Newbie Joined: Sep 2008 Posts: 20 Thanks: 0  Re: Probability task  please help me
my english isn't so good to understand whole text. Thanks for a link, but I only understand the part of all. Could U write how can I calcutale my data in my task? 

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