Interpreting Martingale Tests - Understanding Sampling Error
Document ID: 2006-100 (previously 2006/022)
Published on: 1st November 2006
Author: Colin Holmes, David Roseburgh
In this note we discuss the commonly used ‘martingale’ test of risk neutral ESG simulation output, and the importance of sampling error in interpreting these tests. We begin by defining the test, and explain why it is so commonly used. We then go on to discuss sampling error, giving a simple example to illustrate its importance.
