Silly Putty™ Petroleum Mandy Gunville Cody Scott Matt Shucker Catherine Strickland Sample pages from report.

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Presentation transcript:

Silly Putty™ Petroleum Mandy Gunville Cody Scott Matt Shucker Catherine Strickland Sample pages from report.

Definitions Signal- value that our geologist assigns to the land First Price Sealed Bid Auction- auction where each bidder submits a sealed bid. The highest bidder gets the item and pays what he bid Bidding Rings- groups of companies that get together to share information about the value of the land being auctioned

Project Assumptions The same companies will bid on future oil exploration leases. All geologists are equally skilled, and on average can correctly estimate the proven value of the lease. Except for their means, the distribution of the S V ’s are all identical. All of the companies act in their own best interests, have the same profit margins, and have the same need for business. Thus, they will all use the same strategies to determine their bids.

Mission Statement Silly Putty™ Petroleum wishes to win the lease for the tract of land in question and make a profit. Our team’s task is to use the expertise of our own geologist and others in our bid ring, coupled with mathematics, to determine a winning and profitable bid for the lease.

Project Data Our Signal: $97.2 million Number of Rings: 3 Size of Rings: 8 Other Signals in Our Ring (in millions): Average Ring Signal: $86.8 million

Distribution Errors are close to normally distributed

The Joy of NORMINV As the errors are normally distributed, we can build a simulation of the errors using the =NORMINV() function in Excel with a mean of 0 and a standard deviation of NORMINV turns probabilities into numbers that are normally distributed, “errors” Uses the CDF, not the PDF Use =RAND() function to generate random probabilities to make the simulation random

Building the Simulation First, we build an Excel row with errors from one “auction” with all 24 companies using =NORMINV(). Sample: AuctionCompany 1Company 2Company 3 1=NORMINV(RAND(),0,$E$67)

Generating the Ring Bid Taking $1 million off after taking the Winner’s Curse off

The Final Ring Bid Again, comes down to question of profits. We decide to subtract the full Winner’s Blessing. $ = $81.24 million Final Ring Bid: $81.24 million