Transcript Document 7553062

Sample pages
from report.
Silly Putty™ Petroleum
Mandy Gunville
Cody Scott
Matt Shucker
Catherine Strickland
Definitions
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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
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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
SV’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
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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
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Our Signal: $97.2 million
Number of Rings: 3
Size of Rings: 8
Other Signals in Our Ring (in millions):
78.8 84.7 88.9 86.5
95.6 87.9 74.4
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Average Ring Signal: $86.8 million
Distribution
Errors are close to normally distributed
Errors and Normal
0.0 6
0.0 5
0.0 4
sam ple
0.0 3
norm al
0.0 2
0.0 1
27
25
23
21
19
17
15
13
11
9
7
5
3
1
-1
-3
-5
-7
-9
-11
-13
-15
-17
-19
-21
-23
-25
-27
0
-29
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The Joy of NORMINV
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As the errors are normally distributed, we can
build a simulation of the errors using the
=NORMINV() function in Excel with a mean of
0 and a standard deviation of 9.32.
NORMINV turns probabilities into numbers
that are normally distributed, “errors”
Uses the CDF, not the PDF
Use =RAND() function to generate random
probabilities to make the simulation random
Building the Simulation
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First, we build an Excel row with errors
from one “auction” with all 24
companies using =NORMINV().
Sample:
Auction Company 1
Company 2
Company 3
1
=NORMINV(RAND(),0,$E$67)
=NORMINV(RAND(),0,$E$67)
=NORMINV(RAND(),0,$E$67)
Generating the Ring Bid
Max Signal
96 .1
13 0.4
10 6.1
90 .2
16 0.3
10 2.1
11 0.5
14 8.9
79 .7
60 .0
15 1.1
34 .6
86 .7
60 .5
12 5.9
95 .5
11 7.5
14 2.6
15 6.9
79 .8
13 3.9
99 .8
Adjusted
Signal
93 .4
12 7.6
10 3.4
87 .4
15 7.6
99 .4
10 7.7
14 6.2
76 .9
57 .3
14 8.4
31 .9
83 .9
57 .7
12 3.1
92 .8
11 4.7
13 9.8
15 4.1
77 .0
13 1.2
97 .0
Subtra ct
Winner's
Ble ssing
or Pa rt Of
92 .4
12 6.6
10 2.4
86 .4
15 6.6
98 .4
10 6.7
14 5.2
75 .9
56 .3
14 7.4
30 .9
82 .9
56 .7
12 2.1
91 .8
11 3.7
13 8.8
15 3.1
76 .0
13 0.2
96 .0
Profit or
Loss
Average
Profit
1.4
-0.5
-1.8
0.0
-3.2
-0.3
-1.2
-3.6
-2.2
-1.8
-0.2
2.9
-2.9
-0.8
-1.8
-2.2
-1.4
-4.8
2.7
1.3
-5.0
0.6
-1.1
# Profitable
16
% Profita ble
72 .73%
Taking $1
million off
after taking
the Winner’s
Curse off
The Final Ring Bid
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Again, comes down to question of
profits.
We decide to subtract the full Winner’s
Blessing.
$86.8 - 2.76 - 2.80 = $81.24 million
Final Ring Bid: $81.24 million