Worst-case estimation for econometric models with unobservable components

Authors:
Mercedes Esteban-Bravo;Jose M. Vidal-Sanz
Affiliations:
Department of Business Administration, Universidad Carlos III de Madrid, C/ Madrid 126, Getafe, Madrid, Spain;Department of Business Administration, Universidad Carlos III de Madrid, C/ Madrid 126, Getafe, Madrid, Spain
Venue:
Computational Statistics & Data Analysis
Year:
2007

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Abstract

A worst-case estimator for econometric models containing unobservable components, based on minimax principles for optimal selection of parameters, is proposed. Worst-case estimators are robust against the averse effects of unobservables. Computing worst-case estimators involves solving a minimax continuous problem, which is quite a challenging task. Large sample theory is considered, and a Monte Carlo study of finite-sample properties is conducted. A financial application is considered.