Veestraeten, D. (2012). Transition probabilities in a problem of stochastic process switching Economics Letters, 114(2):201--204.
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Affiliated authorDirk Veestraeten
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Publication year2012
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JournalEconomics Letters
Extant solutions for state-contingent process switching use first-passage time densities or differential equations. We alternatively employ transition probabilities. These conditional likelihood functions also have obvious appeal for econometric analyses as well as derivative pricing and decision making under absorption and extinction.