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A Survey of Sequential Monte Carlo Methods for Economics and Finance

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  • Drew Creal

Abstract

This article serves as an introduction and survey for economists to the field of sequential Monte Carlo methods which are also known as particle filters. Sequential Monte Carlo methods are simulation-based algorithms used to compute the high-dimensional and/or complex integrals that arise regularly in applied work. These methods are becoming increasingly popular in economics and finance; from dynamic stochastic general equilibrium models in macro-economics to option pricing. The objective of this article is to explain the basics of the methodology, provide references to the literature, and cover some of the theoretical results that justify the methods in practice.

Suggested Citation

  • Drew Creal, 2012. "A Survey of Sequential Monte Carlo Methods for Economics and Finance," Econometric Reviews, Taylor & Francis Journals, vol. 31(3), pages 245-296.
    • Handle: RePEc:taf:emetrv:v:31:y:2012:i:3:p:245-296
    DOI: 10.1080/07474938.2011.607333
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    References listed on IDEAS

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    1. Pierre Del Moral & Arnaud Doucet & Ajay Jasra, 2006. "Sequential Monte Carlo samplers," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 68(3), pages 411-436, June.
    2. Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-1339, November.
    3. Godsill, Simon J. & Doucet, Arnaud & West, Mike, 2004. "Monte Carlo Smoothing for Nonlinear Time Series," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 156-168, January.
    4. Nicolas Chopin, 2002. "Central Limit Theorem for Sequential Monte Carlo Methods and its Applications to Bayesian Inference," Working Papers 2002-44, Center for Research in Economics and Statistics.
    5. Liang F., 2002. "Dynamically Weighted Importance Sampling in Monte Carlo Computation," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 807-821, September.
    6. repec:dau:papers:123456789/6072 is not listed on IDEAS
    7. Sangjoon Kim & Neil Shephard & Siddhartha Chib, 1998. "Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(3), pages 361-393.
    8. Sungbae An & Frank Schorfheide, 2007. "Bayesian Analysis of DSGE Models," Econometric Reviews, Taylor & Francis Journals, vol. 26(2-4), pages 113-172.
    9. Nicolas Chopin, 2002. "A sequential particle filter method for static models," Biometrika, Biometrika Trust, vol. 89(3), pages 539-552, August.
    10. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
    11. Siem Jan Koopman & Neil Shephard & Jurgen A. Doornik, 1999. "Statistical algorithms for models in state space using SsfPack 2.2," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 107-160.
    12. Christophe Andrieu & Arnaud Doucet, 2002. "Particle filtering for partially observed Gaussian state space models," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 64(4), pages 827-836, October.
    13. Flury, Thomas & Shephard, Neil, 2011. "Bayesian Inference Based Only On Simulated Likelihood: Particle Filter Analysis Of Dynamic Economic Models," Econometric Theory, Cambridge University Press, vol. 27(05), pages 933-956, October.
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    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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