On Efficient Simulations in Dynamic Models

Posted: 19 Mar 2012

See all articles by Karim M. Abadir

Karim M. Abadir

Imperial College Business School

Paolo Paruolo

European Commission Joint Research Center; European Commission DG Joint Research Centre

Date Written: March 17, 2012

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.

Suggested Citation

Abadir, Karim M. and Paruolo, Paolo, On Efficient Simulations in Dynamic Models (March 17, 2012). Available at SSRN: https://ssrn.com/abstract=2025473

Karim M. Abadir (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

HOME PAGE: http://www3.imperial.ac.uk/portal/page?_pageid=61,629646&_dad=portallive&_schema=PORTALLIVE

Paolo Paruolo

European Commission Joint Research Center ( email )

1049
Belgium

European Commission DG Joint Research Centre ( email )

Via E.Fermi 2749
Ispra, Varese I-21027
Italy

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