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Jinghai Shao

Publications and source records attributed to Jinghai Shao.

34 records · Page 2Linked to original sources
arXiv2018

Estimation and prediction of credit risk based on rating transition systems

Risk management is an important practice in the banking industry. In this paper we develop a new methodology to estimate and predict the probability of default (PD) based on the rating transition matrices, which relates the rating transition matrices to the macroeconomic variables. Our method can overcome the shortcomings of the framework of Belkin et al. (1998), and is especially useful in predicting the PD and doing stress testing. Simulation is conducted at the end, which shows that our method can provide more accurate estimate than that obtained by the method of Belkin et al. (1998).

q-fin.RM↗
arXiv2018

The existence of geodesics in Wasserstein spaces over path groups and loop groups

In this work we prove the existence and uniqueness of the optimal transport map for $L^p$-Wasserstein distance with $p>1$, and particularly present an explicit expression of the optimal transport map for the case $p=2$. As an application, we show the existence of geodesics connecting probability measures satisfying suitable condition on path groups and loop groups.

math.PR↗
arXiv2017

Invariant measures and Euler-Maruyama's approximations of state-dependent regime-switching diffusions

Regime-switching processes contain two components: continuous component and discrete component, which can be used to describe a continuous dynamical system in a random environment. Such processes have many different properties than general diffusion processes, and much more difficulties are needed to be overcome due to the intensive interaction between continuous and discrete component. We give conditions for the existence and uniqueness of invariant measures for state-dependent regime-switching diffusion processes by constructing a new Markov chain to control the evolution of the state-dependent switching process. We also establish the strong convergence in the $L^1$-norm of the Euler-Maruyama's approximation and estimate the order of error. A refined application of Skorokhod's representation of jumping processes plays a substantial role in this work.

math.PR↗
arXiv2017

Heavy tail and light tail of Cox-Ingersoll-Ross processes with regime-switching

This work is denoted to studying the tail behavior of Cox-Ingersoll-Ross (CIR) processes with regime-switching. One essential difference shown in this work between CIR process with regime-switching and without regime-switching is that the stationary distribution for CIR process with regime-switching could be heavy-tailed. Our results provide a theoretical evidence of the existence of regime-switching for interest rates model based on its heavy-tailed empirical evidence. In this work, we first provide sharp criteria to justify the existence of stationary distribution for the CIR process with regime-switching, which is applied to study the long term returns of interest rates. Then under the existence of the stationary distribution, we provide a criterion to justify whether its stationary distribution is heavy-tailed or not.

math.PR↗
arXiv2017

Invariant Measures for Path-Dependent Random Diffusions

In this work, we are concerned with existence and uniqueness of invariant measures for path-dependent random diffusions and their time discretizations. The random diffusion here means a diffusion process living in a random environment characterized by a continuous time Markov chain. Under certain ergodic conditions, we show that the path-dependent random diffusion enjoys a unique invariant probability measure and converges exponentially to its equilibrium under the Wasserstein distance. Also, we demonstrate that the time discretization of the path-dependent random diffusion involved admits a unique invariant probability measure and shares the corresponding ergodic property when the stepsize is sufficiently small. During this procedure, the difficulty arose from the time-discretization of continuous time Markov chain has to be deal with, for which an estimate on its exponential functional is presented.

math.PR↗
arXiv2016

Algebraic stability of non-homogeneous regime-switching diffusion processes

Some sufficient conditions on the algebraic stability of non-homogeneous regime-switching diffusion processes are established. In this work we focus on determining the decay rate of a stochastic system which switches randomly between different states, and owns different decay rates at various states. In particular, we show that if a finite-state regime-switching diffusion process is $p$-th moment exponentially stable in some states and is $p$-th moment algebraically stable in other states, which are characterized by a common Lyapunov function, then this process is ultimately exponentially stable regardless of the jumping rate of the random switching between these states. Moreover, these results can be applied to the stabilization of SDE by feedback control to reduce the observation times.

math.PR↗
arXiv2016

Ergodicity and first passage probability of regime-switching geometric Brownian motions

A regime-switching geometric Brownian motion is used to model a geometric Brownian motion with its coefficients changing randomly according to a Markov chain. In this work, we give a complete characterization of the recurrent property of this process. The long time behavior of this process such as its $p$-th moment is also studied. Moreover, the quantitative properties of the regime-switching geometric Brownian motion with two-state switching are investigated to show the difference between geometric Brownian motion with switching and without switching. At last, some estimates of its first passage probability are established.

math.PR↗
arXiv2015

Boundary crossing probabilities for diffusions with piecewise linear drifts

We propose an approach to approximate the boundary crossing probabilities for general one-dimensional diffusion processes, and derive the convergence rate for this approximation scheme. There results are based on the explicit expression of the Laplace transforms of the first passage densities for diffusions with piecewise linear drifts. The proposed method is applied to a reliability problem where the standard degradation model based on Wiener process is extended to diffusion processes with piecewise linear drifts.

math.PR↗
arXiv2015

Characterization of non-constant lower bound of Ricci curvature via entropy inequality on Wasserstein space

When the Ricci curvature of a Riemannian manifold is not lower bounded by a constant, but lower bounded by a continuous function, we give a new characterization of this lower bound through the convexity of relative entropy on the probability space over the Riemannian manifold. Hence, we generalize K.T. Sturm and von Renesse's result (Comm. Pure Appl. Math. 2005) to the case with non-constant lower bound of Ricci curvature.

math.PR↗
arXiv2015

Stability and recurrence of regime-switching diffusion processes

We provide some criteria on the stability of regime-switching diffusion processes. Both the state-independent and state-dependent regime-switching diffusion processes with switching in a finite state space and an infinite countable state space are studied in this work. We provide two methods to deal with switching processes in an infinite countable state space. One is a finite partition method based on the nonsingular M-matrix theory. Another is an application of principal eigenvalue of a bilinear form. Our methods can deal with both linear and nonlinear regime-switching diffusion processes. Moreover, the method of principal eigenvalue is also used to study the recurrence of regime-switching diffusion processes.

math.PR↗
arXiv2015

Criteria for transience and recurrence of regime-switching diffusion processes

We provide some on-off type criteria for recurrence and transience of regime-switching diffusion processes using the theory of M-matrix and the Perron-Frobenius theorem. State-independent and state-dependent regime-switching diffusion processes in a finite space and a countable space are both studied. We put forward a finite partition method to deal with switching process in a countable space. As an application, we improve the known criteria for recurrence of linear regime-switching diffusion processes, and provide an on-off type criterion for a kind of nonlinear regime-switching diffusion processes.

math.PR↗
arXiv2014

Approximation of Invariant Measures for Regime-Switching Diffusions

In this paper, we are concerned with long-time behavior of Euler-Maruyama schemes associated with a range of regime-switching diffusion processes. The key contributions of this paper lie in that existence and uniqueness of numerical invariant measures are addressed (i) for regime-switching diffusion processes with finite state spaces by the Perron-Frobenius theorem if the "averaging condition" holds, and, for the case of reversible Markov chain, via the principal eigenvalue approach provided that the principal eigenvalue is positive; (ii) for regime-switching diffusion processes with countable state spaces by means of a finite partition method and an M-Matrix theory. We also reveal that numerical invariant measures converge in the Wasserstein metric to the underlying ones. Several examples are constructed to demonstrate our theory.

math.PR↗
arXiv2014

Ergodicity of regime-switching diffusions in Wasserstein distances

Based on the theory of M-matrix and Perron-Frobenius theorem, we provide some criteria to justify the convergence of the regime-switching diffusion processes in Wasserstein distances. The cost function we used to define the Wasserstein distance is not necessarily bounded. The continuous time Markov chains with finite and countable state space are all studied. To deal with the countable state space, we put forward a finite partition method. The boundedness for state-dependent regime-switching diffusions in an infinite state space is also studied.

math.PR↗
arXiv2012

Nonlinear boundary crossing probabilities of Brownian motion with random jumps

We derive explicit formulas for probabilities of Brownian motion with jumps crossing linear or piecewise linear boundaries in any finite interval. We then use these formulas to approximate the boundary crossing probabilities for general nonlinear boundaries. The jump process can be any integer-valued process and jump sizes can have general distributions. Moreover, the jump sizes can be even correlated and/or non-identically distributed. The numerical algorithm is straightforward and easy to implement. Some numerical examples are presented.

math.PR↗