Please Answer using Microsoft Excel 1 Suppose we modify the

Please Answer using Microsoft Excel

1. Suppose we modify the production model to obtain the following mathmatical model:

Max 10X

s.t.

ax 40

x 0

Where a is the number of hours of production time required for each unit produced. With a=5, the optimal solution is x=8. If we have a stochastic model with a=3,a=4,a=5, or a=6 as the possible values for the number of hours required per unit, what is the optimal value for x? What problems does this stochastic model cause?

Solution

Ans-

Stochastic modeling is a form of financial modeling that includes one or more random variables. The purpose of such modeling is to estimate how probable outcomes are within a forecast to predict conditions for different situations. The Monte Carlo simulation is one example of a stochastic model; when used for portfolio evaluation, various simulations of how a portfolio may perform are developed based on probability distributions of individual stock returns.

BREAKING DOWN \'Stochastic Modeling\'

Stochastic modeling presents data, or predicts outcomes, all of which account for certain degrees of unpredictability, or randomness. Stochastic modeling is used in a variety of industries around the world, many of which are dependent on such models for improving business practices or increasing profitability. For example, the insurance industry relies heavily on stochastic modeling to predict the future of company balance sheets. Other industries and fields of study that depend on stochastic modeling include stock investing, statistics, linguistics, biology and even quantum physics.

Understanding the Concept of Stochastic Modeling

To understand the sometimes confusing concept of stochastic modeling, it is helpful to compare it to deterministic modeling. While the former produces a variety of answers, estimations or outcomes, deterministic modeling is the opposite. Under deterministic modeling, there is typically only one solution, or answer, to a problem in most elementary mathematics. Deterministic modeling also typically dictates there is only one set of specific values. Alternatively, stochastic modeling can be likened to adding variations to a complex math problem to see its effect on the solution. This process is then repeated in a number of different ways to produce a number of solutions.

Read more: Stochastic Modeling Definition | Investopedia http://www.investopedia.com/terms/s/stochastic-modeling.asp#ixzz4NwMORH6w
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