A Cross-Entropy Scheme for Mixtures
Copyright policy )A Cross-Entropy Scheme for Mixtures
We discuss how to generalize the classic cross-entropy method in the case where a family of mixture distributions, such as the mixture of multiple Gaussian modes, is used as an importance sampling distribution. A new iterative cross-entropy scheme, based on the idea of the EM method, is proposed to overcome the challenge of deciding the optimal weights for each mode in the mixture. Detailed studies of this new algorithm and its applications to the estimation of rainbow option prices are presented to demonstrate the efficiency of the scheme.
- Brown University United States
- City University of Hong Kong China (People's Republic of)
mixture, importance sampling, Estimation in multivariate analysis, cross-entropy scheme, Monte Carlo methods, Computational methods for stochastic equations (aspects of stochastic analysis)
mixture, importance sampling, Estimation in multivariate analysis, cross-entropy scheme, Monte Carlo methods, Computational methods for stochastic equations (aspects of stochastic analysis)
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