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Quantitative Techniques
Case Studies
Case (20
Marks)
Since 9/11•terrorism has cased threat attacks which have drawn the attention of political and media world. The US h
to launch. a 'war on terror' and applied a range of counteract terrorism safety measures towards aviation, pub
transportation, ports, borders, public Hermie places, etc. While these steps may show cheap course of act!on
government and security services, it is quite expensive. According to the calculations done by Mueller and Stewa
(2011), the expenditure of US homeland and security has gone over 1.1 trillion dollars, which includes federal, state a
domestic government, and private sector, and also the cost of opportunity. The Iraq an Afghanistan wars have added 1
trillion dollars to this expenditure. The expenditure of federal, state and local US government on home ground secur
has been estimated to 75 billion dollars more than the last levels of 2001. It is seen that US is not the only country to
in these high level of expenses, even though no other country can match its per capita or GDP expenditure. F
example, increased expenditure• on homeland security in UK, Canada and Australia is nearly one half to one quarter
US expenditure per capita or GDP. Nevertheless, in 2009, the government spent nearly 141.6 billion dollars each ye
on homeland security. This figure is expected to reach about 300 billion dollars by 2016. After 9/11, the main objecti
has been to prevent or alleviate any harm or casualty as a result of terrorism. The main issue is, if this expenditure
counteracting terrorism been invest.ed in a way that has increased the cost of security of the public efficiently or no
Hence, the commission report of 9/11, among other issues, was called upon • the US government to execute safe
measures which show evaluation of risks and effectiveness of expenditure. Nevertheless, while the US needs t
evaluate expenditure benefits for government regulations, such evaluation seems co have not been done for homela
security in general, or for the DHS (department of homeland security). One of the causes could be that DHS is not ab
to take up such evaluation. The NRC (national research council) committee of the National Academics of Science
Engineering and Medicine, made a request through S Congress to evaluate the functions of DHS, which was working
the project for almost 2 years, came up with some surprising result-. Besides e'•aluation of natural disasters, t
committee 'did not find any DHS risk analysis capabilities and methods that are yet adequate for supporting DH
decision making.' Due to which, very less confidence could be had in most of the risk evaluation done by DHS. T
committee said that "it is not yet clear that DHS is on a I ! trajectory for development of methods and capability that
sufficient to ensure reliable risk analyses". usually the government and their rigid agencies shoo a neutral behav
towards their decision making. Stewart says that "the standard criterion for deciding whether a government; programm
can be justified on economic principles is net present value - the discounted monetized value of expected net benef
(i.e., benefits minus costs)" and that "expected values (an unbiased estimate) is the appropriate estimate for use" (UM
1992).
Answer the following question.
Q1.
What are the reasons that show that DHS is incapable in evaluating the risks of national security?
(Hint: while the US needs to evaluate expenditure benefits for government regulations, such evaluation
seem to have not been done for homeland security in general, DHS is not able to take up such
evaluation.)
Case Studies
Case (20
Marks)
Since 9/11•terrorism has cased threat attacks which have drawn the attention of political and media world. The US h
to launch. a 'war on terror' and applied a range of counteract terrorism safety measures towards aviation, pub
transportation, ports, borders, public Hermie places, etc. While these steps may show cheap course of act!on
government and security services, it is quite expensive. According to the calculations done by Mueller and Stewa
(2011), the expenditure of US homeland and security has gone over 1.1 trillion dollars, which includes federal, state a
domestic government, and private sector, and also the cost of opportunity. The Iraq an Afghanistan wars have added 1
trillion dollars to this expenditure. The expenditure of federal, state and local US government on home ground secur
has been estimated to 75 billion dollars more than the last levels of 2001. It is seen that US is not the only country to
in these high level of expenses, even though no other country can match its per capita or GDP expenditure. F
example, increased expenditure• on homeland security in UK, Canada and Australia is nearly one half to one quarter
US expenditure per capita or GDP. Nevertheless, in 2009, the government spent nearly 141.6 billion dollars each ye
on homeland security. This figure is expected to reach about 300 billion dollars by 2016. After 9/11, the main objecti
has been to prevent or alleviate any harm or casualty as a result of terrorism. The main issue is, if this expenditure
counteracting terrorism been invest.ed in a way that has increased the cost of security of the public efficiently or no
Hence, the commission report of 9/11, among other issues, was called upon • the US government to execute safe
measures which show evaluation of risks and effectiveness of expenditure. Nevertheless, while the US needs t
evaluate expenditure benefits for government regulations, such evaluation seems co have not been done for homela
security in general, or for the DHS (department of homeland security). One of the causes could be that DHS is not ab
to take up such evaluation. The NRC (national research council) committee of the National Academics of Science
Engineering and Medicine, made a request through S Congress to evaluate the functions of DHS, which was working
the project for almost 2 years, came up with some surprising result-. Besides e'•aluation of natural disasters, t
committee 'did not find any DHS risk analysis capabilities and methods that are yet adequate for supporting DH
decision making.' Due to which, very less confidence could be had in most of the risk evaluation done by DHS. T
committee said that "it is not yet clear that DHS is on a I ! trajectory for development of methods and capability that
sufficient to ensure reliable risk analyses". usually the government and their rigid agencies shoo a neutral behav
towards their decision making. Stewart says that "the standard criterion for deciding whether a government; programm
can be justified on economic principles is net present value - the discounted monetized value of expected net benef
(i.e., benefits minus costs)" and that "expected values (an unbiased estimate) is the appropriate estimate for use" (UM
1992).
Answer the following question.
Q1.
What are the reasons that show that DHS is incapable in evaluating the risks of national security?
(Hint: while the US needs to evaluate expenditure benefits for government regulations, such evaluation
seem to have not been done for homeland security in general, DHS is not able to take up such
evaluation.)
ANSWER
The National Academy of Sciences recommended that the Department of Homeland Security use methods of qualitative comparative risk assessment as part of its approach to strategic planning. To provide insight into how this can be done, this paper examines a set of ten homeland security risks– including natural disasters, terrorist events, and major accidents– in a systematic fashion. These hazards were described in terms of the annualized risk to the United States as a whole using open-source data and a standardized set of attributes. This assessment can be useful on its own, providing a baseline of knowledge about these homeland security risks and a source of data for subsequent risk management and comparative risk assessment studies. Additionally, this assessment can help identify what is known about the homeland security risk generally– the availability of data on homeland security risks and the uncertainty of the risks as they vary by hazard and attribute.
FOR DETAILED ANSWERS CONTACT US
Q2. The government spent nearly 141.6 billion dollars each year on (Hint: homeland security)
CASE STUDY
(20
Marks)
The bulbs manufactured by a company gave a mean life of 3000 hours with standard deviation of 400 hours. If a bulb
selected at random, what is the probability it will have a mean life less than 2000 hours?
Answer the following question.
Q1. Calculate the probability.
Q2. In what situation does one need probability theory?
Q3. Define the concept of sample space, sample points and events in context of probability theory.
Q4. What is the difference between objective and subjective probability?
A monte Carlo Case Study (20
Marks)
Laura,' a 57 year old unmarried woman, earns around 68,000 dollars per year with expenditure of 37,500 dollars. She
away 14,000 dollars each year and collected 330,000 dollars in her RRSP and TFSA, and also a rented apartment wor
250,000 dollars. She has a iixed pension given by her employer, although it is not indicated to price rise, and Is entitl
to get complete benefits of Canada Pension Plan and Old Age Security, for retirement. She did not have a ve
competent portfolio: one fourth of cash is there, and most of it was in contracted sector ETFs, single stocks a
business bonds. Due to wrong entry of ETFs in the account, unnecessary taxes were charged. Even befo
reconstructing Laura's portfolio,"he had to make certain that it matched with.her financial aims. Laura's main aim was
ascertain if she could retire before the age of 65, maybe as early as 60, therefore she had to know if her investmen
could produce enough flow of cash after she retires. Monte Carlo may show a top possibility of success with t
allotment of equity of 70% ot 80%. Through a risky questionnaire and art open interview, Justin Ill 'ascertain that Lau
was the best person for a portfolio of 60% fixed income and 40% equities. Through Monte Carlo software, Justin enter
the current portfolio . size of Laura, her rate of savings, projected retirement expenditure, and other employer incom
and government pensions. If Laura feels that working till the age of 63 was unpleasant, she could go for the reproducti
again and with different estimation. Increasing her anticipated returns or bringing down the rate of inflation, is only
thought, therefore, she will have to make some stronger decisions: she will have to making some more savings, or bri
down her rate of planned expenses after retirement. Amazingly, by bringing up the allotment to fixed salary cou
increase her opportunity to succeed: in spite of th returns being lower than the equities, the volatility is also less, whi
lessens the risk of helpless decline in the early years. At last, Laura decided to work for 6 more years and plan h
retirement at the age of 63. After this, Justin decided to help her make a fresh ETF portfolio to match that goal: it w
finalized at 30% short term business bonds, 30% GICs, and the rest of it was divided among Canadian, L'S and glob
equities. Laura was able to make a notified decision through the Monte Carlo simulation, but this wasn't the end of t
procedure. In two or three years time, she will have to visit the location again to see that she is still on the right path
her retirement goal, as many issues like, loss of job, a legacy, new connections, increase in the interest rates, all the
could bring a change in the main suppositions and she will have to redo her plans. The possibilities are different befo
the age of 63. For each added year that Laura works, her portfolio will addition instead of a decrease and this will lead
a thrilling difference: the success rate will rise up by 25% points if she continues to work till the age of 61 instead of 60.
Answer the following question.
Q1. How much was Laura earning at the age of 57? (Hint: 68,000 dollars per year)
CASE STUDY (20
Marks)
The price P per unit at which a company can sell all that it produces is given by the function P(x) = 300 — 4x. The co
function is c(x) = 500 + 28x where x is the number of units produced. Find x so that the profit is maximum.
Answer the following question.
Q1. Find the value of x.
Q2. In using regression analysis for making predictions what are the assumptions involved.
Q3. What is a simple linear regression model?
Q4. What is a scatter diagram method?
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