The Simulated Likelihood Ratio (SLR) Method

A simulation method based on importance sampling, Gibbs and Metropolis-Hastings techniques allows to approximate the ratio between the likelihhod function computed for two different parameter values. Thus it is possible to approximate the maximum likelihood estimator in the general framework of dynamic latent variable models. Some examples of this class of models are factor models, switching regime models, dynamic limited dependent varaible models, stochastic volatility models and discretised continuous time models.