Markov chain Monte Carlo for computing rare-event probabilities for a heavy-tailed random walk
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Publication:5169731
Abstract: In this paper a method based on a Markov chain Monte Carlo (MCMC) algorithm is proposed to compute the probability of a rare event. The conditional distribution of the underlying process given that the rare event occurs has the probability of the rare event as its normalizing constant. Using the MCMC methodology a Markov chain is simulated, with that conditional distribution as its invariant distribution, and information about the normalizing constant is extracted from its trajectory. The algorithm is described in full generality and applied to the problem of computing the probability that a heavy-tailed random walk exceeds a high threshold. An unbiased estimator of the reciprocal probability is constructed whose normalized variance vanishes asymptotically. The algorithm is extended to random sums and its performance is illustrated numerically and compared to existing importance sampling algorithms.
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Cited in
(12)- Hastings-Metropolis algorithm on Markov chains for small-probability estimation
- Rare-event probability estimation with conditional Monte Carlo
- Rare-event simulation of heavy-tailed random walks by sequential importance sampling and resampling
- A sequential Monte Carlo approach to computing tail probabilities in stochastic models
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- Markov chain importance sampling with applications to rare event probability estimation
- A dichotomy for sampling barrier-crossing events of random walks with regularly varying tails
- Efficient Rare-Event Simulation for Multiple Jump Events in Regularly Varying Random Walks and Compound Poisson Processes
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