Markov chain monte carlo for computing rare-event probabilities for a heavy-tailed random walk
2014 (English)In: Journal of Applied Probability, ISSN 0021-9002, E-ISSN 1475-6072, Vol. 51, no 2, 359-376 p.Article in journal (Refereed) Published
In this paper a method based on a Markov chain Monte Carlo (MCMC) algorithm is proposed to compute the probability of a rare event. The conditional distribution of the underlying process given that the rare event occurs has the probability of the rare event as its normalizing constant. Using the MCMC methodology, a Markov chain is simulated, with the aforementioned conditional distribution as its invariant distribution, and information about the normalizing constant is extracted from its trajectory. The algorithm is described in full generality and applied to the problem of computing the probability that a heavy-tailed random walk exceeds a high threshold. An unbiased estimator of the reciprocal probability is constructed whose normalized variance vanishes asymptotically. The algorithm is extended to random sums and its performance is illustrated numerically and compared to existing importance sampling algorithms.
Place, publisher, year, edition, pages
Applied Probability Trust , 2014. Vol. 51, no 2, 359-376 p.
Markov chain Monte Carlo, heavy tail, rare-event simulation, random walk
Probability Theory and Statistics
IdentifiersURN: urn:nbn:se:kth:diva-136800DOI: 10.1239/jap/1402578630ISI: 000338269000005ScopusID: 2-s2.0-84904006393OAI: oai:DiVA.org:kth-136800DiVA: diva2:677218
Research funded by Göran Gustafsson's foundation2013-12-092013-12-092014-12-16Bibliographically approved