A new formula for some linear stochastic equations with applications

Processes with independent increments; Lévy processes (60G51) Stochastic integral equations (60H20) Applications of queueing theory (congestion, allocation, storage, traffic, etc.) (60K30)

Abstract: We give a representation of the solution for a stochastic linear equation of the form

X_{t} = Y_{t} + i n t_{(0, t]} X_{s -} m a t h r m d Z_{s}

where

Z

is a c'adl'ag semimartingale and

Y

is a c'adl'ag adapted process with bounded variation on finite intervals. As an application we study the case where

Y

and

- Z

are nondecreasing, jointly have stationary increments and the jumps of

- Z

are bounded by 1. Special cases of this process are shot-noise processes, growth collapse (additive increase, multiplicative decrease) processes and clearing processes. When

Y

and

Z

are, in addition, independent L'evy processes, the resulting

X

is called a generalized Ornstein-Uhlenbeck process.

Review text

Let \(Z\) be a cádlág adapted semimartingale and \(Y\) a cádlág adapted and with bounded variation on compact intervals. The authors in this paper examines the stochastic linear equation \[ X_t = Y_t + \int_{[0,t]} X_{s-} dZ_s. \] They show that the unique cádlág adapted solution is given via the representation \[ X_t = \int_{[0,t]} U_{u,t}dY_u, \] where \(U_{u,t}\) is defined explicitly in terms of \(Z\). Next they discuss an application to the case where \(Y\) and \(-Z\) are nondecreasing processes, jointly have stationary increments and the jumps of \(-Z\) are bounded by 1.

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