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Accuracy of stochastic perturbuation methods: the case of asset pricing models

Fabrice Collard () and Michel Juillard ()

CEPREMAP Working Papers (Couverture Orange) from CEPREMAP

Abstract: This paper investigates the accuracy of a perturbation method in approximating the solution to stochastic equilibrium models under rational expectations. As a benchmark model, we use a version of asset pricing models proposed by Burnside [1988] which admits a closed-form solution while not making the assumptions of certainty equivalence. We then check the accuracy of perturbation methods -extended to a stochastic environment- against the closed form solution. Second an especially fourth order expansions are then found to be more efficient than standard linear approximation, as they are able to account for higher order moments of the distribution.

JEL-codes: C63 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-fmk
Date: 1999
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Journal Article: Accuracy of stochastic perturbation methods: The case of asset pricing models (2001) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cpm:cepmap:9922

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