14
$\begingroup$

I was wondering if those who used the entropy pooling code provided by Attilio Meucci had issues with the optimization procedure (especially regarding the fminunc function in Matlab). When I stress for example the expectation and the volatility, I get weird results for some stress values Stock price distribution with stress values 100 for expectation and 20 for volatility, prior in blue, posterior in red

and the following warning:

Local minimum possible:
fminunc stopped because the final change in function value relative to 
its initial value is less than the selected value of the function tolerance.

How can one deal with this ?

For information, the image represents a stock price distribution with stress values 100 for expectation and 20 for volatility, prior in blue, posterior in red.

Improve this question
$\endgroup$
3
  • $\begingroup$ Can you show us your data? $\endgroup$
    – Bob Jansen ♦
    Commented Feb 28, 2013 at 18:35
  • 2
    $\begingroup$ I have noticed that taking extreme views can tend to cause problems (the effective number of simulations being low is usually a good sign). One simple way to check the results is to assume it is a normal distribution and take the views using the analytical formula and see how the results change. $\endgroup$
    – John
    Commented Mar 1, 2013 at 0:03
  • 2
    $\begingroup$ Thanks John, I compared the results with the normal distribution, and the numerical solution indeed does not match the analytical solution when I apply extreme views on expectation or volatility. For those interested, the solution is in section 4 of the "Fully flexible extreme views" paper, a Gauss-Hermite grid solves the problem. $\endgroup$
    – Bytesize
    Commented Mar 1, 2013 at 14:26

0

Reset to default

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.