Departments Forfattere "Raahauge, Peter"
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Raahauge, Peter (København, 2003)[Flere oplysninger][Færre oplysninger]
Resume: Rational expectations models make stringent assumptions on the agent's knowledge about the true model. This paper introduces a model in which the rational agent realizes that using a given model involves approximation errors, and adjusts behavior accordingly. If the researcher accounts for this empirical rationality on part of the agent, the resulting empirical model assigns likelihood to the data actually observed, unlike in the unmodified rational expectations case. A Lucas (1978)type asset pricing model which incorporates empirical rationality is constructed and estimated using U.S. stock data. The equilibrium asset pricing function is seriously affected by the existence of approximation errors and the descriptive properties and normative implications of the model are significantly improved. This suggests that investors do not  and should not  ignore approximation errors. Keywords: Approximation errors, model uncertainty, estimation of structural models, rational expectations, asset pricing. URI: http://hdl.handle.net/10398/7139 Filer i denne post: 1
wp141.pdf (347.7Kb) 
Raahauge, Peter (København, 2001)[Flere oplysninger][Færre oplysninger]

Raahauge, Peter (København, 2004)[Flere oplysninger][Færre oplysninger]
Resume: Kinks and jumps in the payoff function of option contracts prevent an effective implementation of higherorder numerical approximation methods. Moreover, the derivatives (the greeks) are not easily determined around such singularities, even with standard lowerorder methods. This paper suggests a transformation to turn the original illconditioned pricing problem into a wellbehaved numerical problem. For a standard test case, both vanilla and binary call price functions are approximated with (tensor) Bsplines of up to 10’th order. Polynomial convergence rates of orders up to approximately 10 are obtained for prices as well as for first and second order derivatives (delta and gamma). Unlike similar studies, numerical approximation errors are measured both as weighted averages and in the supnorm over a state space including timetomaturities down to a split second. KEYWORDS: Numerical option pricing, Transformed state spaces, Higherorder Bsplines. URI: http://hdl.handle.net/10398/7157 Filer i denne post: 1
2004_5.pdf (467.4Kb) 
Christensen, Bent Jesper; Raahauge, Peter (København, 2004)[Flere oplysninger][Færre oplysninger]
Resume: We consider a random utility extension of the fundamental Lucas (1978) equilibrium asset pricing model. The resulting structural model leads naturally to a likelihood function. We estimate the model using U.S. asset market data from 1871 to 2000, using both dividends and earnings as state variables. We find that current dividends do not forecast future utility shocks, whereas current utility shocks do forecast future dividends. The estimated structural model produces a sequence of predicted utility shocks which provide better forecasts of future longhorizon stock market returns than the classical dividendprice ratio. KEYWORDS: Randomutility, asset pricing, maximumlikelihood, structuralmodel, return predictability URI: http://hdl.handle.net/10398/7135 Filer i denne post: 1
endeligt_wp_peter_raahauge_2004_7.pdf (270.6Kb) 
Raahauge, Peter (København, 2004)[Flere oplysninger][Færre oplysninger]
Resume: This paper suggests a method for determining rigorous upper bounds on approximation errors of numerical solutions to infinite horizon dynamic programming models. Bounds are provided for approximations of the value function and the policy function as well as the derivatives of the value function. The bounds apply to more general problems than existing bounding methods do. For instance, since strict concavity is not required, linear models and piecewise linear approximations can be dealt with. Despite the generality, the bounds perform well in comparison with existing methods even when applied to approximations of a standard (strictly concave) growth model. KEYWORDS: Numerical approximation errors, Bellman contractions, Error bounds URI: http://hdl.handle.net/10398/7171 Filer i denne post: 1
2004_4.pdf (385.2Kb)
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