Computable Bounds for Extreme Event Probabilities in Stochastic Economic Models
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.
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- Bruce E. Hansen & Mehmet Caner, 1997.
"Threshold Autoregressions with a Unit Root,"
Boston College Working Papers in Economics
381, Boston College Department of Economics.
- Alan M. Taylor, 2000.
"Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price,"
NBER Working Papers
7577, National Bureau of Economic Research, Inc.
- Taylor, Alan M, 2001. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica, Econometric Society, vol. 69(2), pages 473-98, March.
- Darrell Duffie & Kenneth J. Singleton, 1990.
"Simulated Moments Estimation of Markov Models of Asset Prices,"
NBER Technical Working Papers
0087, National Bureau of Economic Research, Inc.
- Duffie, Darrell & Singleton, Kenneth J, 1993. "Simulated Moments Estimation of Markov Models of Asset Prices," Econometrica, Econometric Society, vol. 61(4), pages 929-52, July.
- Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
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