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Level-crossing probabilities and first-passage times for linear processes

Published online by Cambridge University Press:  01 July 2016

Gopal K. Basak*
Affiliation:
University of Bristol
Kwok-Wah Remus Ho*
Affiliation:
Hong Kong University of Science and Technology
*
Postal address: Department of Mathematics, University of Bristol, Bristol BS8 1TW, UK. Email address: [email protected]
∗∗ Postal address: Department of Information and Systems Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong. Email address: [email protected]

Abstract

Discrete time-series models are commonly used to represent economic and physical data. In decision making and system control, the first-passage time and level-crossing probabilities of these processes against certain threshold levels are important quantities. In this paper, we apply an integral-equation approach together with the state-space representations of time-series models to evaluate level-crossing probabilities for the AR(p) and ARMA(1,1) models and the mean first passage time for AR(p) processes. We also extend Novikov's martingale approach to ARMA(p,q) processes. Numerical schemes are used to solve the integral equations for specific examples.

Type
General Applied Probability
Copyright
Copyright © Applied Probability Trust 2004 

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