DIFFUSION LIMITS FOR A MARKOV MODULATED BINOMIAL COUNTING PROCESS

DOI10.1017/S0269964818000578MaRDI QIDQ5111484zbMATH OpenWikidataFDO

Authors Peter Spreij, Jaap Storm

Publication date 27 May 2020

Published in Probability in the Engineering and Informational Sciences (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1801.03682

zbMATH Keywords

counting processcentral limit theoremsfunctional limit theoremsMarkov-modulated process

Mathematics Subject Classification ID

Central limit and other weak theorems (60F05) Diffusion processes (60J60) Functional limit theorems; invariance principles (60F17)

Abstract: In this paper we study limit behavior for a Markov-modulated (MM) binomial counting process, also called a binomial counting process under regime switching. Such a process naturally appears in the context of credit risk when multiple obligors are present. Markov-modulation takes place when the failure/default rate of each individual obligor depends on an underlying Markov chain. The limit behavior under consideration occurs when the number of obligors increases unboundedly, and/or by accelerating the modulating Markov process, called rapid switching. We establish diffusion approximations, obtained by application of (semi)martingale central limit theorems. Depending on the specific circumstances, different approximations are found.

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Cited in

(4)

• A diffusion-based analysis of a multiclass road traffic network
• Infinite server queues in a random fast oscillatory environment
• Explicit computations for some Markov modulated counting processes
• Limit Laws fork-Coverage of Paths by a Markov–Poisson–Boolean Model

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