Example: bankruptcy
Monte Carlo Methods and Importance Sampling
t) takes the value 1 when X t = 0 and 0 otherwise. Denoting the ith simulated value of X tby x (i) our Monte Carlo estimate would be Pe(X t=0jX 0 = x 0) … 1 n Xn i=1 If0g(x (i)): Example II: Monte Carlo approximations to distributions. A simple extension of the above example is to approximate the whole probability distribution P(X tjX 0 = x 0 ...
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