A Cross-Entropy Approach to the Estimation of Generalized Linear Multilevel Models

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Abstract

In this article, we use the cross-entropy method for noisy optimization for fitting generalized linear multilevel models through maximum likelihood. We propose specifications of the instrumental distributions for positive and bounded parameters that improve the computational performance. We also introduce a new stopping criterion, which has the advantage of being problem-independent. In a second step we find, by means of extensive Monte Carlo experiments, the most suitable values of the input parameters of the algorithm. Finally, we compare the method to the benchmark estimation technique based on numerical integration. The cross-entropy approach turns out to be preferable from both the statistical and the computational point of view. In the last part of the article, the method is used to model the probability of firm exits in the healthcare industry in Italy. Supplemental materials are available online.

Publication
Journal of Computational and Graphical Statistics, 26 (3), 695–708
Flavio Santi
Flavio Santi
Assistant Professor of Economic Statistics

Department of Economics, University of Verona

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