Advanced Search
MyIDEAS: Login to save this article or follow this journal

Discrete Approximations of Probability Distributions

Contents:

Author Info

  • Allen C. Miller, III

    (Practical Innovations, Inc., Sunnyvale, California)

  • Thomas R. Rice

    (ANR Technology Co., Detroit)

Registered author(s):

    Abstract

    Practical limits on the size of most probabilistic models require that probability distributions be approximated by a few representative values and associated probabilities. This paper demonstrates that methods commonly used to determine discrete approximations of probability distributions systematically underestimate the moments of the original distribution. A new procedure based on gaussian quadrature is developed in this paper. It can be used to decrease the error in the approximation to any desired level.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://dx.doi.org/10.1287/mnsc.29.3.352
    Download Restriction: no

    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 29 (1983)
    Issue (Month): 3 (March)
    Pages: 352-362

    as in new window
    Handle: RePEc:inm:ormnsc:v:29:y:1983:i:3:p:352-362

    Contact details of provider:
    Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA
    Phone: +1-443-757-3500
    Fax: 443-757-3515
    Email:
    Web page: http://www.informs.org/
    More information through EDIRC

    Related research

    Keywords: decision analysis; approximations; approximate probability distributions;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Karl Mina & Gerald Cheang & Carl Chiarella, 2013. "Approximate Hedging of Options under Jump-Diffusion Processes," Research Paper Series 340, Quantitative Finance Research Centre, University of Technology, Sydney.
    2. Peck, Dannele E. & Adams, Richard M., 2010. "Farm-level impacts of prolonged drought: is a multiyear event more than the sum of its parts?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(1), March.
    3. Peck, Dannele E. & Adams, Richard M., 2007. "The persistence of drought impacts across growing seasons: a dynamic stochastic analysis," 101st Seminar, July 5-6, 2007, Berlin Germany 9253, European Association of Agricultural Economists.
    4. Wall, A.D. & Worthington, D.J., 2007. "Time-dependent analysis of virtual waiting time behaviour in discrete time queues," European Journal of Operational Research, Elsevier, vol. 178(2), pages 482-499, April.
    5. Dasheng Ji & B. Brorsen, 2011. "A recombining lattice option pricing model that relaxes the assumption of lognormality," Review of Derivatives Research, Springer, vol. 14(3), pages 349-367, October.
    6. Tanaka, Ken’ichiro & Toda, Alexis Akira, 2013. "Discrete approximations of continuous distributions by maximum entropy," Economics Letters, Elsevier, vol. 118(3), pages 445-450.
    7. DeVuyst, Eric A. & Preckel, Paul V., 1997. "Sensitivity analysis revisited: A quadrature-based approach," Journal of Policy Modeling, Elsevier, vol. 19(2), pages 175-185, April.
    8. Liu, Songquan & Moskowitz, Herbert & Plante, Robert & Preckel, Paul V., 2002. "Product and process yield estimation with Gaussian quadrature (GQ) reduction: Improvements over the GQ full factorial approach," European Journal of Operational Research, Elsevier, vol. 140(3), pages 655-669, August.
    9. Horan, Richard D. & Claassen, Roger & Cooper, Joseph C., 2000. "Environmental Risk And Agri-Environmental Policy Design," 2000 Annual meeting, July 30-August 2, Tampa, FL 21827, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. David Abler & Adrián Rodríguez & James Shortle, 1999. "Parameter Uncertainty in CGE Modeling of the Environmental Impacts of Economic Policies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 14(1), pages 75-94, July.
    11. Ji, Dasheng & Brorsen, B. Wade, 2000. "Increasing The Accuracy Of Option Pricing By Using Implied Parameters Related To Higher Moments," 2000 Conference, April 17-18 2000, Chicago, Illinois 18945, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    12. Griffith, Marnie & Codner, Gary & Weinmann, Erwin & Schreider, Sergei, 2009. "Modelling hydroclimatic uncertainty and short-run irrigator decision making: the Goulburn system," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(4), December.
    13. Christopher Boyer & B. Brorsen & Tong Zhang, 2014. "Common-value auction versus posted-price selling: an agent-based model approach," Journal of Economic Interaction and Coordination, Springer, vol. 9(1), pages 129-149, April.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:29:y:1983:i:3:p:352-362. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.