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This paper proposes a moment-matching method for approximating vector autoregressions by finite-state Markov chains. The Markov chain is constructed by targeting the conditional moments of the underlying continuous process. The proposed method is more robust to the number of discrete values and...
Persistent link: https://www.econbiz.de/10010126857
The papers in this special issue of Mathematics and Computers in Simulation cover the following topics: improving judgmental adjustment of model-based forecasts, whether forecast updates are progressive, on a constrained mixture vector autoregressive model, whether all estimators are born equal:...
Persistent link: https://www.econbiz.de/10010326266
We present a comprehensive framework for Bayesian estimation of structural nonlinear dynamic economic models on sparse grids. The Smolyak operator underlying the sparse grids approach frees global approximation from the curse of dimensionality and we apply it to a Chebyshev approximation of the...
Persistent link: https://www.econbiz.de/10003636133
Persistent link: https://www.econbiz.de/10009765832
Simulated models suffer intrinsically from validation and comparison problems. The choice of a suitable indicator quantifying the distance between the model and the data is pivotal to model selection. However, how to validate and discriminate between alternative models is still an open problem...
Persistent link: https://www.econbiz.de/10010490842
This paper presents a tailor-made discrete-time simulation model for valuing path-dependent options, such as lookback option, barrier option and Asian option. In the context of a real-life application that is interest to many students, we illustrate the option pricing by using Quasi Monte Carlo...
Persistent link: https://www.econbiz.de/10013139321
An enhanced option pricing framework that makes use of both continuous and discontinuous time paths based on a geometric Brownian motion and Poisson-driven jump processes respectively is performed in order to better fit with real-observed stock price paths while maintaining the analytical...
Persistent link: https://www.econbiz.de/10013118115
The implied volatility surface (IVS) is a fundamental building block in computational finance. We provide a survey of methodologies for constructing such surfaces. We also discuss various topics which can influence the successful construction of IVS in practice: arbitrage-free conditions in both...
Persistent link: https://www.econbiz.de/10013122634
We consider the problem of reducing the variance of Monte Carlo estimators of multivariate estimation problems by combining the variance reduction techniques Latin hypercube sampling with dependence (LHSD), control variates and importance sampling. Under some standard conditions, the resulting...
Persistent link: https://www.econbiz.de/10013097629
A credit-linked note (CLN) on a tranche of the CDX index (partially) protects the holder against default losses in that tranche. The holder receives a specified redemption amount at note maturity. The note is priced using market spread quotes for a matching CDS on this tranche
Persistent link: https://www.econbiz.de/10013098210