Markov-modulated Ornstein-Uhlenbeck processes

DOI10.1017/APR.2015.15zbMATH Open1337.60191arXiv1412.7952OpenAlexW240227400MaRDI QIDQ2806355FDOQ2806355

Gang Huang, H. M. Jansen, P. J. C. Spreij, Koen De Turck, M. R. H. Mandjes

Publication date: 17 May 2016

Published in: Advances in Applied Probability (Search for Journal in Brave)

Abstract: In this paper we consider an Ornstein-Uhlenbeck (OU) process $(M(t){)}_{tgeqslant0}$ whose parameters are determined by an external Markov process $(X(t){)}_{tgeqslant0}$ on a finite state space $1,ldots,d$; this process is usually referred to as Markov-modulated Ornstein-Uhlenbeck (MMOU). We use stochastic integration theory to determine explicit expressions for the mean and variance of $M(t)$. Then we establish a system of partial differential equations (PDEs) for the Laplace transform of $M(t)$ and the state $X(t)$ of the background process, jointly for time epochs $t=t_1,ldots,t_K.$ Then we use this PDE to set up a recursion that yields all moments of $M(t)$ and its stationary counterpart; we also find an expression for the covariance between $M(t)$ and $M(t+u)$. We then establish a functional central limit theorem for $M(t)$ for the situation that certain parameters of the underlying OU processes are scaled, in combination with the modulating Markov process being accelerated; interestingly, specific scalings lead to drastically different limiting processes. We conclude the paper by considering the situation of a single Markov process modulating multiple OU processes.

Full work available at URL: https://arxiv.org/abs/1412.7952

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zbMATH Keywords

regime switchingfunctional central limit theoremOrnstein-Uhlenbeck processesMarkov modulationmartingale techniques

Mathematics Subject Classification ID

Gaussian processes (60G15) Central limit and other weak theorems (60F05) Diffusion processes (60J60) Functional limit theorems; invariance principles (60F17) Martingales with continuous parameter (60G44) Continuous-time Markov processes on discrete state spaces (60J27)

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