Monte Carlo Simulation of Macroeconomic Risk with a Continuum of Agents: The Symmetric Case

Peter Hammond and Yeneng Sun ()

Working Papers from Stanford University, Department of Economics

Abstract: October 2001

Suppose a large economy with individual risk is modeled by a continuum of pairwise exchangeable random variables (i.i.d., in particular). Then the relevant stochastic process is jointly measurable only in degenerate cases. Yet in Monte Carlo simulation, the average of a large finite draw of the random variables converges almost surely. Several necessary and sufficient conditions for such "Monte Carlo convergence" are given. Also, conditioned on the associated Monte Carlo sigma-algebra, which represents macroeconomic risk, individual agents' random shocks are independent. Furthermore, a converse to one version of the classical law of large numbers is proved.

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Date: 2001-10
New Economics Papers: this item is included in nep-cmp and nep-mac
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Journal Article: Monte Carlo simulation of macroeconomic risk with a continuum of agents: the symmetric case (2003)
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