Scenario processes: estimation and calibration
by
Georg Ch. Pflug
Universitaet Wien

A scenario process is a discrete-time discrete-space Markovian process, which models future developments of economic time series.

Calibration is the procedure to estimate the parameters of this process in such a way, that internal prices of financial instruments are equal to the prices observed in the market.

We may view the calibration process as a statistical parameter estimation problem for a constrained parameter set. Since the constraints are nonlinear in general, the estimation problem is algorithmically difficult. Moreover, since some constraints are only accessible through simulation, the whole problem appears as a problem of linking optimization with simulation in an efficient way.

This research is funded by the Special Research Program SFB F011 'Aurora' supported by the Austrian Science Fund.

Date received: March 1, 1999

Copyright © 1999 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # cacq-23.