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.
|Date of creation:||2005|
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Boston College Working Papers in Economics
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