Abstract
The focus of the paper is the process of model validation. The discussion illustrates some problems encountered in validating stochastic models, with special reference to market behavior models. A brief discussion of some important dimensions of model validation are presented. The discussion focuses on the role of simulation to generate sample universes for realistic output validation (both at micro and macro levels) of a stochastic model. Also, some light is shed upon two neglected aspects of model validation, experimentation to test the realism of a model's policy implications and a comparative evaluation with existing models. It is hoped for that the article has raised some important issues for the attention of a serious model builder.
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Rao, T.R. Validation of stochastic models: Some perspectives. JAMS 3, 192–199 (1975). https://doi.org/10.1007/BF02729530
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DOI: https://doi.org/10.1007/BF02729530