Rare event simulation for processes generated via stochastic fixed point equations

DOI10.1214/13-AAP974zbMATH Open1316.65015arXiv1107.3284MaRDI QIDQ744388FDOQ744388

Authors: Jeffrey F. Collamore, Guoqing Diao, Anand N. Vidyashankar 

Publication date: 25 September 2014

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: In a number of applications, particularly in financial and actuarial mathematics, it is of interest to characterize the tail distribution of a random variable $V$ satisfying the distributional equation $VstackrelmathcalD=f(V)$, where $f(v)=Amaxv,D+B$ for $(A,B,D)in(0,infty)imes{mathbbR}^2$. This paper is concerned with computational methods for evaluating these tail probabilities. We introduce a novel importance sampling algorithm, involving an exponential shift over a random time interval, for estimating these rare event probabilities. We prove that the proposed estimator is: (i) consistent, (ii) strongly efficient and (iii) optimal within a wide class of dynamic importance sampling estimators. Moreover, using extensions of ideas from nonlinear renewal theory, we provide a precise description of the running time of the algorithm. To establish these results, we develop new techniques concerning the convergence of moments of stopped perpetuity sequences, and the first entrance and last exit times of associated Markov chains on $mathbbR$. We illustrate our methods with a variety of numerical examples which demonstrate the ease and scope of the implementation.

Full work available at URL: https://arxiv.org/abs/1107.3284

Recommendations

• Rare-event simulation for stochastic recurrence equations with heavy-tailed innovations
• Rare events simulation for heavy-tailed distributions
• Tail estimates for stochastic fixed point equations via nonlinear renewal theory
• Density approximation and exact simulation of random variables that are solutions of fixed-point equations
• State-dependent importance sampling for regularly varying random walks

zbMATH Keywords

importance samplinglarge deviationfinancial time seriesMonte Carlo methodsrisk theoryregeneration timesARCH processeslast exit timesnonlinear renewal theoryfirst entrance timesHarris recurrent Markov chainsruin theory with stochastic invesments

Mathematics Subject Classification ID

Computational methods in Markov chains (60J22) Monte Carlo methods (65C05) Numerical analysis or methods applied to Markov chains (65C40) Large deviations (60F10) Economic time series analysis (91B84) Numerical methods (including Monte Carlo methods) (91G60) Markov chains (discrete-time Markov processes on discrete state spaces) (60J10) Discrete-time Markov processes on general state spaces (60J05) Markov renewal processes, semi-Markov processes (60K15) Stopping times; optimal stopping problems; gambling theory (60G40) Random operators and equations (aspects of stochastic analysis) (60H25)

Cites Work

• Sequential analysis. Tests and confidence intervals
• Applied Probability and Queues
• Random difference equations and renewal theory for products of random matrices
• Stochastic simulation: Algorithms and analysis
• On a stochastic difference equation and a representation of non–negative infinitely divisible random variables
• General Irreducible Markov Chains and Non-Negative Operators
• Title not available (Why is that?)
• Implicit renewal theory and tails of solutions of random equations
• On distributional properties of perpetuities
• Importance sampling in the Monte Carlo study of sequential tests
• Importance sampling techniques for the multidimensional ruin problem for general Markov additive sequences of random vectors
• Title not available (Why is that?)
• Large deviations of uniformly recurrent Markov additive processes
• Dynamic importance sampling for uniformly recurrent Markov chains
• Efficient rare-event simulation for perpetuities
• Random recurrence equations and ruin in a Markov-dependent stochastic economic environment
• A nonlinear renewal theory with applications to sequential analysis II
• Some Renewal Theorems with Application to a First Passage Problem
• Tail estimates for stochastic fixed point equations via nonlinear renewal theory
• Large deviation tail estimates and related limit laws for stochastic fixed point equations

Cited In (17)

• Analysis and simulation of rare events for SPDEs
• On the Kesten-Goldie constant
• Simulation and estimation of extreme quantiles and extreme probabilities
• Importance sampling for maxima on trees
• A Koopman framework for rare event simulation in stochastic differential equations
• Efficient rare-event simulation for perpetuities
• Importance sampling approximations to various probabilities of ruin of spectrally negative Lévy risk processes
• Convergence of the population dynamics algorithm in the Wasserstein metric
• Rare-event simulation for stochastic recurrence equations with heavy-tailed innovations
• Large excursions and conditioned laws for recursive sequences generated by random matrices
• Discovery of rare event testing for stochastic simulations of diffusion processes
• Importance sampling of heavy-tailed iterated random functions
• Density approximation and exact simulation of random variables that are solutions of fixed-point equations
• Large deviation tail estimates and related limit laws for stochastic fixed point equations
• Tail estimates for stochastic fixed point equations via nonlinear renewal theory
• Rare event simulation for steady-state probabilities via recurrency cycles
• Limit theory and robust evaluation methods for the extremal properties of GARCH\((p,q)\) processes

This page was built for publication: Rare event simulation for processes generated via stochastic fixed point equations

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q744388)