A Comparative Study of Monte Carlo Methods for Efficient Evaluation of Marginal Likelihood

This discussion paper resulted in an article in <I>Computational Statistics & Data Analysis</I> (2012). Vol. 56(11), 3398-3414.<p> Strategic choices for efficient and accurate evaluation of marginal likelihoods by means of Monte Carlo simulation methods are studied for the case of highly non-elliptical posterior distributions. A comparative analysis is presented of possible advantages and limitations of different simulation techniques; of possible choices of candidate distributions and choices of target or warped target distributions; and finally of numerical standard errors. The importance of a robust and flexible estimation strategy is demonstrated where the complete posterior distribution is explored. Given an appropriately yet quickly tuned adaptive candidate, straightforward importance sampling provides a computationally efficient estimator of the marginal likelihood (and a reliable and easily computed corresponding numerical standard error) in the cases investigated in this paper, which include a non-linear regression model and a mixture GARCH model. Warping the posterior density can lead to a further gain in efficiency, but it is more important that the posterior kernel is appropriately wrapped by the candidate distribution than that is warped.