Saturday, November 09, 2013

Poisson distribution and crisis

Create a model for financial crisis that is based on a Poisson distribution. The number of world financial shocks in a decade.  What is the distribution?  Does this change over time?  Use the Rogoff data.

Poisson distribution - Wikipedia, the free encyclopedia: "The distribution was first introduced by Siméon Denis Poisson (1781–1840) and published, together with his probability theory, in 1837 in his work Recherches sur la probabilité des jugements en matière criminelle et en matière civile (“Research on the Probability of Judgments in Criminal and Civil Matters”).[3] The work focused on certain random variables N that count, among other things, the number of discrete occurrences (sometimes called "events" or “arrivals”) that take place during a time-interval of given length. The result had been given previously by Abraham de Moivre (1711) in De Mensura Sortis seu; de Probabilitate Eventuum in Ludis a Casu Fortuito Pendentibus in Philosophical Transactions of the Royal Society, p. 219.[4]"

In this way there is a link to reliability engineering: what are the policy measures that make the system more or less stable?

There is a worked example on hurricanes here.

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