Optimizing Long-term Incentive Plans



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is the Y intercept, the value of Y if all X are zero.

is the independent variable of observation i of variable j.

is the coefficient assigned to the independent variable j during regression, this is the parameter we like to estimate.

is the error term of observation i, which models the unsystematic error of the term from the predicted term. It is also known as random noise ().
The predicted equation looks like:



is the predicted (optimized) value of observation i.

is the predicted parameter of the independent variable j.
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