User manual PALISADE PRECISIONTREE 5.5

[. . . ] User's Guide PrecisionTree Decision Analysis Add-In For Microsoft Excel ® Version 5. 5 May, 2009 Palisade Corporation 798 Cascadilla St. Ithaca, NY 14850 USA (607) 277-8000 http://www. palisade. com Copyright Notice Copyright © 2009, Palisade Corporation Trademark Acknowledgments PrecisionTree, TopRank, BestFit and Palisade are registered trademarks of Palisade Corporation. RISK is a trademark of Parker Brothers, Division of Tonka Corporation, and is used under license. Microsoft, Excel and Windows are registered trademarks of Microsoft Corporation. Welcome Welcome to PrecisionTree, the decision analysis software that's an add-in to Microsoft Excel. [. . . ] By clicking on an end node, however, the payoff formula for a specific path may be changed as necessary with the option Use Alternate Formula. Two functions may be used in a payoff formula (in addition to any standard Excel function, operator or cell reference): - BranchVal("node name", missing value), which returns the value of the branch of node name which was followed on the path. The missing value is the number that should be used (typically 0) if no node with that name exists on that path. If the payoff formula contains node names that are encountered on every path, the missing value argument is optional. See the example file OIL ­ FORMULA. XLS for an illustration. - BranchProb("node name", missing value), which returns the probability of the branch of node name which was followed on the path. The missing value is the number that should be used (typically 0) if no node with that name exists on that path. If the payoff formula contains node names that are encountered on every path, the missing value argument is optional. · Linked Spreadsheet. The Linked Spreadsheet method for payoff calculation allows both branch and payoff values in a decision tree to be linked to cells in an Excel model that is Edit Menu 124 external to the tree. By linking values, end node payoffs can be calculated by a detailed spreadsheet model. In a linked tree, each node can be linked to an Excel cell reference or range name. When a linked tree is recalculated, branch values on each path in the tree are substituted into the designated cells in the Excel model and the payoff is calculated. End node payoffs are then taken from the cell specified as the location of the payoff value. See the example file OIL ­ LINKED TREE. XLS for an illustration. For linked trees, two additional linked model settings are available ­ Link Updating and Default Cell. - Link Updating specifies whether or not PrecisionTree will automatically update end node payoffs in a linked tree each time the tree or linked model is edited. This option may be set to Manual when a large linked tree is being edited and the continued recalculations slow performance. When Link Updating is set to Manual, click the Update Model Links icon on the PrecisionTree toolbar to force all end node payoffs to be updated. - Default Cell specifies a default payoff cell reference or range name. This cell reference will initially be used for all newly created end nodes in the decision tree. The default payoff reference may be changed on an end nodespecific basis when payoffs should be read in from a different cell for the linked tree. The VBA Macro method for payoff calculation allows you to calculate a decision tree using a VBA macro. [. . . ] There a two forms of stochastic dominance. The first, called payoff, occurs when the preferred alternative pays more than the other with an equal probability of payoff. The second, called probability, occurs when the preferred alternative pays the same as the other with a greater probability of payoff. Stochastic dominance can contain a combination of both forms, but the dominant alternative always has a higher expected value. [. . . ]