Efficient importance sampling for Monte Carlo evaluation of exceedance probabilities

DOI10.1214/105051606000000664zbMATH Open1134.65005arXivmath/0703910OpenAlexW3098708189MaRDI QIDQ2455052FDOQ2455052

Hock Peng Chan, Tze Leung Lai

Publication date: 22 October 2007

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: Large deviation theory has provided important clues for the choice of importance sampling measures for Monte Carlo evaluation of exceedance probabilities. However, Glasserman and Wang [Ann. Appl. Probab. 7 (1997) 731--746] have given examples in which importance sampling measures that are consistent with large deviations can perform much worse than direct Monte Carlo. We address this problem by using certain mixtures of exponentially twisted measures for importance sampling. Their asymptotic optimality is established by using a new class of likelihood ratio martingales and renewal theory.

Full work available at URL: https://arxiv.org/abs/math/0703910

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zbMATH Keywords

importance samplingnumerical exampleslarge deviationsrare eventsregenerationtail probabilitiesMarkov additive processboundary crossing probabilityMarkov random walkMonte Carlo evaluationasymptotically optimal importance sampling measureMarkov setting

Mathematics Subject Classification ID

Computational methods in Markov chains (60J22) Monte Carlo methods (65C05) Numerical analysis or methods applied to Markov chains (65C40) Large deviations (60F10) Sums of independent random variables; random walks (60G50) Discrete-time Markov processes on general state spaces (60J05)

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Cited In (13)

• Bounded Relative Error Importance Sampling and Rare Event Simulation
• A Cross-Entropy Scheme for Mixtures
• A sequential Monte Carlo approach to computing tail probabilities in stochastic models
• Random recurrence equations and ruin in a Markov-dependent stochastic economic environment
• Importance Sampling and the Cyclic Approach
• On an automatic and optimal importance sampling approach with applications in finance
• Modified importance sampling for performance evaluation and sensitivity analysis of computer simulation models
• Dynamic importance sampling for uniformly recurrent Markov chains
• Cross-Entropy-Based Importance Sampling with Failure-Informed Dimension Reduction for Rare Event Simulation
• The sample size required in importance sampling
• On large deviations theory and asymptotically efficient Monte Carlo estimation
• Discussion on “Is Average Run Length to False Alarm Always an Informative Criterion?” by Yajun Mei
• Discussion on “Sequential detection/isolation of abrupt changes” by Igor V. Nikiforov

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