Bayesian Inference of Financial Models Using MCMC Algorithms

Hiroki Tsurumi,Xianghua Liu,Liuling Li

doi:10.1007/978-0-387-77117-5_91

Bayesian Inference of Financial Models Using MCMC Algorithms

Hiroki Tsurumi, Xianghua Liu + Show 1 more

https://doi.org/10.1007/978-0-387-77117-5_91

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Publication Date: Jan 1, 2010

Citations: 11

Affiliation: Rutgers, The State University of New Jersey

#Markov Chain Monte Carlo Algorithms #Markov Chain Monte Carlo + Show 8 more

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Abstract

After using the Monty Hall problem to explain Bayes’ rule, we introduce Gibbs sampler and Markov Chain Monte Carlo (MCMC) algorithms. The marginal posterior probability densities obtained by the MCMC algorithms are compared to the exact marginal posterior densities. We present two financial applications of MCMC algorithms: the CKLS model of the Japanese uncollaterized call rate and the Gaussian copula model of S&P500 and FTSE100.

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