You are the financial risk manager at Freedom Power in Butte Montana. In terms of heating degrees days H, your profits are Your profit function is -0.00014H2 + 0.24H -90. H is normally distributed with a mean of 950 and a standard deviation of 180.

A: What is the probability you will lose money?

B: Puts and calls are available 0.7 standard deviations from the mean, with a markup of 15 percent. Your company is not worried about losing money because it is too warm. However, they want you to reduce the probability of losing money because it is too cold to 2 percent. What will you do, and how much will it cost you?

Answer rating: 100% (QA)

a The probability that you will lose money is 00194 Profit Function 000014H2 024H 90 Mean 950 ... View the full answer