Stochastic modelling with randomized Markov bridges

DOI10.1080/17442508.2019.1703988MaRDI QIDQ5086618zbMATH OpenOpenAlexFDO

Authors Andrea Macrina, Jun Sekine

Publication date 6 July 2022

Published in Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1411.1214

zbMATH Keywords

climate risk managementcommodity pricingfilteringgreenhouse gas emissionhidden random variablerandomized Markov bridgeskew-normal randomized diffusion

Mathematics Subject Classification ID

Signal detection and filtering (aspects of stochastic processes) (60G35) Continuous-time Markov processes on general state spaces (60J25) Diffusion processes (60J60) Environmental economics (natural resource models, harvesting, pollution, etc.) (91B76)

Abstract: We consider the filtering problem of estimating a hidden random variable $X$ by noisy observations. The noisy observation process is constructed by a randomised Markov bridge (RMB) $(Z_t{)}_{tin[0,T]}$ of which terminal value is set to $Z_T=X$. That is, at the terminal time $T$, the noise of the bridge process vanishes and the hidden random variable $X$ is revealed. We derive the explicit filtering formula, governing the dynamics of the conditional probability process, for a general RMB. It turns out that the conditional probability is given by a function of current time $t$, the current observation $Z_t$, the initial observation $Z_0$, and the a priori distribution $u$ of $X$ at $t=0$. As an example for an RMB we explicitly construct the skew-normal randomised diffusion bridge and show how it can be utilised to extend well-known commodity pricing models and how one may propose novel stochastic price models for financial instruments linked to greenhouse gas emissions.

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Cited in

(4)

• Stochastic modelling with randomized Markov bridges
• Markov Bridges, Bisection and Variance Reduction
• From irrevocably modulated filtrations to dynamical equations over random networks
• On the optimal stopping of randomized Gauss-Markov bridges

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