Discrete approximations of continuous distributions by maximum entropy

Tanaka, Ken’ichiro and Alexis Akira Toda

Economics Letters, 2013, vol. 118, issue 3, 445-450

Abstract: In numerically implementing the optimization of an expected value in many economic models, it is often necessary to approximate a given continuous probability distribution by a discrete distribution. We propose an approximation method based on the principle of maximum entropy and minimum Kullback–Leibler information, which is computationally very simple. Our method is not intended to replace existing methods but to complement them by “fine-tuning” probabilities so as to match prescribed (not necessarily polynomial) moments exactly.

Keywords: Discrete approximation; Fenchel duality; Kullback–Leibler information; Maximum entropy principle (search for similar items in EconPapers)
JEL-codes: C63 C65 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:118:y:2013:i:3:p:445-450

DOI: 10.1016/j.econlet.2012.12.020

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