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Sale price above 15000 given a 9000 reserve

Question

A seller accepts the first offer of $9000 or more for his car. Offers are i.i.d. exponential with mean $5000. Conditional on the car being sold, the probability that the sale price is at least $15000 can be written as eae^{a} with aa rational. Find aa.

Short answer

a=−6/5a=-6/5. The accepted bid is distributed as a bid conditioned on exceeding $9000. By memorylessness, P(B≥15000∣B≥9000)=P(B≥6000)=e−6000/5000=e−6/5\mathbb{P}(B\ge15000\mid B\ge9000)=\mathbb{P}(B\ge6000)=e^{-6000/5000}=e^{-6/5}.

Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.

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