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Computable Bounds for Extreme Event Probabilities in Stochastic Economic Models

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  • John Stachurski

Abstract

The paper introduces a multiplicative drift condition for evaluating stochastic economic models. The drift condition is shown to permit computation of quantitative bounds for extreme event probabilities in terms of the model primitives. By way of illustration, the technique is applied to a simple threshold autoregression model of exchange rates.

Suggested Citation

  • John Stachurski, 2005. "Computable Bounds for Extreme Event Probabilities in Stochastic Economic Models," Department of Economics - Working Papers Series 927, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:927
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-05/927.pdf
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    References listed on IDEAS

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    3. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
    4. Mandelbrot, Benoit B, 1972. "Correction of an Error in "The Variation of Certain Speculative Prices" (1963)," The Journal of Business, University of Chicago Press, vol. 45(4), pages 542-543, October.
    5. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
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