Robust parametric inference for finite Markov chains

DOI10.1007/S11749-021-00771-1zbMATH Open1484.62107arXiv2004.01249OpenAlexW3157433368MaRDI QIDQ2125477FDOQ2125477

Authors: Abhik Ghosh 

Publication date: 14 April 2022

Published in: Test (Search for Journal in Brave)

Abstract: We consider the problem of statistical inference in a parametric finite Markov chain model and develop a robust estimator of the parameters defining the transition probabilities via minimization of a suitable (empirical) version of the popular density power divergence. Based on a long sequence of observations from a first-order stationary Markov chain, we have defined the minimum density power divergence estimator (MDPDE) of the underlying parameter and rigorously derived its asymptotic and robustness properties under appropriate conditions. Performance of the MDPDEs is illustrated theoretically as well as empirically for some common examples of finite Markov chain models. Its applications in robust testing of statistical hypotheses are also discussed along with (parametric) comparison of two Markov chain sequences. Several directions for extending the MDPDE and related inference are also briefly discussed for multiple sequences of Markov chains, higher order Markov chains and non-stationary Markov chains with time-dependent transition probabilities. Finally, our proposal is applied to analyze corporate credit rating migration data of three international markets.

Full work available at URL: https://arxiv.org/abs/2004.01249

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zbMATH Keywords

robustnessparametric inferencefinite Markov chainminimum density power divergence estimator

Mathematics Subject Classification ID

Applications of Markov chains and discrete-time Markov processes on general state spaces (social mobility, learning theory, industrial processes, etc.) (60J20) Markov processes: hypothesis testing (62M02) Robustness and adaptive procedures (parametric inference) (62F35)

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Cited In (1)

• Statistical inference for Markov chains with applications to credit risk

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