Bounds on Negative Binomial Approximation to Call Function

MaRDI QIDQ6367709FDOQ6367709

Authors Amit N. Kumar

Publication date 15 May 2021

Mathematics Subject Classification ID

Probability distributions: general theory (60E05) Asymptotic distribution theory in statistics (62E20) Central limit and other weak theorems (60F05) Approximations to statistical distributions (nonasymptotic) (62E17)

Abstract: In this paper, we develop Stein's method for negative binomial distribution using call function defined by $f_z(k)=(k-z{)}^{+}=maxk-z,0$, for $kge0$ and $zge0$. We obtain error bounds between $mathbbE[f_z(ext{N}_{r,p})]$ and $mathbbE[f_z(V)]$, where $ext{N}_{r,p}$ follows negative binomial distribution and $V$ is the sum of locally dependent random variables, using certain conditions on moments. We demonstrate our results through an interesting application, namely, collateralized debt obligation (CDO), and compare the bounds with the existing bounds.

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