This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: (100%, 80%, 64%) of the current state. At each state, we would consider: max { no pump, pump, enhanced pump } At each node, you would consider which of the three options yields the largest PV (including the future decisions) 2 At the top node (100) of Year 2, you would consider: max { no pump, pump, enhanced pump } = max { , (100 , 000 * . 2) * 1050 , 000 , (100 , 000 * . 36)120 , 000 } = max { , 150 , 000 , 240 , 000 } = 240 , 000 (enhanced pumping) Continue with all the nodes using the Dynamic Programming Algorithm 5.9b The maximum present value is $366,740. The strategy is to have Enhanced Pumping for the ﬁrst two years and normal pumping for the last year. 3...
View
Full Document
 Spring '11
 R.KWON
 Dynamic Programming, Optimization, dynamic programming algorithm, Trinomial Tree, maximum present value, Nick Yeung

Click to edit the document details