Improved cross-entropy method for estimation |
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Authors: | Joshua C C Chan Dirk P Kroese |
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Institution: | 1. Research School of Economics, Australian National University, Canberra, ACT, 0200, Australia 2. Department of Mathematics, University of Queensland, Brisbane, QLD, 4072, Australia
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Abstract: | The cross-entropy (CE) method is an adaptive importance sampling procedure that has been successfully applied to a diverse range of complicated simulation problems. However, recent research has shown that in some high-dimensional settings, the likelihood ratio degeneracy problem becomes severe and the importance sampling estimator obtained from the CE algorithm becomes unreliable. We consider a variation of the CE method whose performance does not deteriorate as the dimension of the problem increases. We then illustrate the algorithm via a high-dimensional estimation problem in risk management. |
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