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On efficient simulation in dynamic models

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  • Abadir Karim M.

    ()
    (Imperial College London, London)

  • Paruolo Paolo

    ()
    (Department of Economics, University of Insubria, Italy)

Abstract

Ways of improving the efficiency of Monte-Carlo (MC) techniques are studied for dynamic models. Such models cause the conventional Antithetic Variate (AV) technique to fail, and will be proved to reduce the benefit from using Control Variates with nearly nonstationary series. This paper suggests modifications of the two conventional variance reduction techniques to enhance their efficiency. New classes of AVs are also proposed. Methods of reordering innovations are found to do less well than others which rely on changing some signs in the spirit of the traditional AV. Numerical and analytical calculations are given to investigate the features of the proposed techniques. JEL classification code: C15 Key words: Dynamic models, Monte-Carlo (MC), Variance Reduction Technique (VRT), Antithetic Variate (AV), Control Variate (CV), Efficiency Gain (EG), Response Surface (RS).

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File URL: http://eco.uninsubria.it/dipeco/Quaderni/files/QF2007_9.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0709.

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Length: 27 pages
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:ins:quaeco:qf0709

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  1. Johannes Jahn & RĂ¼diger Rauh, 1997. "Contingent epiderivatives and set-valued optimization," Computational Statistics, Springer, vol. 46(2), pages 193-211, June.
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