When developing an air-mile price for task 2, one can either (1) leave the model's deterministic assumptions at fixed levels, and focus solely on the volatility that arises from stochastic fuel prices, or (2) perform a sensitivity test for the deterministic assumptions (# of earned miles, marginal cost of labor, etc) in addition to evaluating stochastic fuel prices.
Given that task 3 requests a sensitivity analysis of the deterministic assumptions, does this imply that we are not to dabble with the deterministic assumptions in task 2? If we adjust the assumptions in task 2, it might complicate efforts to grade the papers, by creating too broad a range of answers for graders to evaluate. Yet in real life, it would be foolish to develop a unit price without examining ALL key risks, as opposed to focusing exclusively on fuel price volatility.
Any thoughts on the best approach for task 2? Any thoughts on whether we should vary the deterministic assumptions? I'd appreciate feedback.
Given that task 3 requests a sensitivity analysis of the deterministic assumptions, does this imply that we are not to dabble with the deterministic assumptions in task 2? If we adjust the assumptions in task 2, it might complicate efforts to grade the papers, by creating too broad a range of answers for graders to evaluate. Yet in real life, it would be foolish to develop a unit price without examining ALL key risks, as opposed to focusing exclusively on fuel price volatility.
Any thoughts on the best approach for task 2? Any thoughts on whether we should vary the deterministic assumptions? I'd appreciate feedback.
BBA Task 2 -- strategy for pricing an air-mile
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