C - Mathematical and Quantitative Methods
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Model Averaging in Markov-Switching Models: Predicting National Recessions with Regional Data
This paper introduces new weighting schemes for model averaging when one is interested in combining discrete forecasts from competing Markov-switching models. In particular, we extend two existing classes of combination schemes – Bayesian (static) model averaging and dynamic model averaging – so as to explicitly reflect the objective of forecasting a discrete outcome. -
Testing for the Diffusion Matrix in a Continuous-Time Markov Process Model with Applications to the Term Structure of Interest Rates
The author proposes a test for the parametric specification of each component in the diffusion matrix of a d-dimensional diffusion process. Overall, d (d-1)/2 test statistics are constructed for the off-diagonal components, while d test statistics are constructed for the main diagonal components.