Simulating discounted costs

Simulating discounted costs

0.00 Avg rating0 Votes
Article ID: iaor19911793
Country: United States
Volume: 35
Issue: 11
Start Page Number: 1297
End Page Number: 1315
Publication Date: Nov 1989
Journal: Management Science
Authors: ,
Keywords: finance & banking, stochastic processes
Abstract:

The authors numerically estimate, via simulation, the expected infinite-horizon discounted cost d of running a stochastic system. A naive strategy estimates a finite-horizon approximation to d. The authors propose alternatives. All are ranked with respect to asymptotic variance as a function of computer-time budget and discount rate, when semi-Markov and/or regenerative structure or neither is assumed. In this setting, the naive truncation estimator loses; it may triumph, however, when the computer-time budget is modest, the discount rate is large, and the process simulated is not regenerative or has long cycle lengths.

Reviews

Required fields are marked *. Your email address will not be published.