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Monte Carlo simulation of macroeconomic risk with a continuum of agents: the symmetric case

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Author Info
Peter J. Hammond
Yeneng Sun

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Abstract

Suppose a large economy with individual risk is modeled by a continuum of pairwise exchangeable random variables (i.i.d., in particular). Then the relevant stochastic process is jointly measurable only in degenerate cases. Yet in Monte Carlo simulation, the average of a large finite draw of the random variables converges almost surely. Several necessary and sufficient conditions for such “Monte Carlo convergence” are given. Also, conditioned on the associated Monte Carlo -algebra, which represents macroeconomic risk, individual agents' random shocks are independent. Furthermore, a converse to one version of the classical law of large numbers is proved. Copyright Springer-Verlag Berlin Heidelberg 2003

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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 21 (2003)
Issue (Month): 2 (03)
Pages: 743-766
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Handle: RePEc:spr:joecth:v:21:y:2003:i:2:p:743-766

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Related research
Keywords: Keywords and Phrases: Large economy; Continuum of agents; Law of large numbers; Exchangeability; Joint measurability problem; de Finetti's theorem; Monte Carlo convergence; Monte Carlo $\sigma$-algebra.; JEL Classification Numbers: D80; C00; E00.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Chamberlain, Gary, 2000. "Econometrics and decision theory," Journal of Econometrics, Elsevier, vol. 95(2), pages 255-283, April. [Downloadable!] (restricted)
  2. Anderson, Robert M., 1991. "Non-standard analysis with applications to economics," Handbook of Mathematical Economics, in: W. Hildenbrand & H. Sonnenschein (ed.), Handbook of Mathematical Economics, edition 1, volume 4, chapter 39, pages 2145-2208 Elsevier. [Downloadable!] (restricted)
  3. McCall, John J., 1991. "Exchangeability and its economic applications," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 549-568, July. [Downloadable!] (restricted)
  4. Mordecai Kurz & Martin Schneider, 1996. "Coordination and correlation in Markov rational belief equilibria (*)," Economic Theory, Springer, vol. 8(3), pages 489-520.
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  5. Kohlberg, Elon & Reny, Philip J., 1997. "Independence on Relative Probability Spaces and Consistent Assessments in Game Trees," Journal of Economic Theory, Elsevier, vol. 75(2), pages 280-313, August. [Downloadable!] (restricted)
  6. Peter J. Hammond & Yeneng Sun, 2000. "Joint Measurability and the One-way Fubini Property for a Continuum of Independent Random Variables," Working Papers 00008, Stanford University, Department of Economics. [Downloadable!]
  7. Matthew O. Jackson & Ehud Kalai & Rann Smorodinsky, 1999. "Bayesian Representation of Stochastic Processes under Learning: de Finetti Revisited," Econometrica, Econometric Society, vol. 67(4), pages 875-894, July.
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  8. Feldman, Mark & Gilles, Christian, 1985. "An expository note on individual risk without aggregate uncertainty," Journal of Economic Theory, Elsevier, vol. 35(1), pages 26-32, February. [Downloadable!] (restricted)
  9. M. Ali Khan & Yeneng Sun, 1999. "Weak measurability and characterizations of risk," Economic Theory, Springer, vol. 13(3), pages 541-560. [Downloadable!] (restricted)
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  12. Kurz, Mordecai, 1996. "Rational Beliefs and Endogenous Uncertainty," Economic Theory, Springer, vol. 8(3), pages 383-97, October.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hanno Lustig, 2001. "The Market Price of Aggregate Risk and the Wealth Distribution," Finance 0111004, EconWPA, revised 16 Nov 2001. [Downloadable!]
    Other versions:
  2. Peter Hammond & Yeneng Sun, 2008. "Monte Carlo simulation of macroeconomic risk with a continuum of agents: the general case," Economic Theory, Springer, vol. 36(2), pages 303-325, August. [Downloadable!] (restricted)
  3. Hammond, Peter J. & Sun, Yeneng, 2007. "Monte Carlo Simulation of Macroeconomic Risk with a Continuum Agents : The General Case," The Warwick Economics Research Paper Series (TWERPS) 803, University of Warwick, Department of Economics. [Downloadable!]
  4. Dirk Krueger & Hanno Lustig, 2006. "When is Market Incompleteness Irrelevant for the Price of Aggregate Risk (and when is it not)?," NBER Working Papers 12634, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Krüger, Dirk & Lustig, Hanno, 2006. "The Irrelevance of Market Incompleteness for the Price of Aggregate Risk," CEPR Discussion Papers 5936, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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