Bounds on Negative Binomial Approximation to Call Function

arXiv2105.07191MaRDI QIDQ6367709FDOQ6367709

Authors: Amit N. Kumar 

Publication date: 15 May 2021

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.

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)

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