Multivariate regular variation of heavy-tailed Markov chains

arXivmath/0701411MaRDI QIDQ6478624FDOQ6478624

Publication date: 15 January 2007

Abstract: The upper extremes of a Markov chain with regulary varying stationary marginal distribution are known to exhibit under general conditions a multiplicative random walk structure called the tail chain. More generally, if the Markov chain is allowed to switch from positive to negative extremes or vice versa, the distribution of the tail chain increment may depend on the sign of the tail chain on the previous step. But even then, the forward and backward tail chain mutually determine each other through a kind of adjoint relation. As a consequence, the finite-dimensional distributions of the Markov chain are multivariate regularly varying in a way determined by the back-and-forth tail chain. An application of the theory yields the asymptotic distribution of the past and the future of the solution to a stochastic difference equation conditionally on the present value being large in absolute value.

Mathematics Subject Classification ID

Extreme value theory; extremal stochastic processes (60G70) Applications of statistics to actuarial sciences and financial mathematics (62P05) Stationary stochastic processes (60G10) Discrete-time Markov processes on general state spaces (60J05) Random operators and equations (aspects of stochastic analysis) (60H25)

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