Exact simulation of quadratic intensity models

Qu, Yan, Dassios, Angelos ORCID: 0000-0002-3968-2366, Liu, Anxin and Zhao, Hongbiao (2024) Exact simulation of quadratic intensity models. Informs Journal on Computing. ISSN 1091-9856

Text (p_Point_Quad_OU_Sim_20240920) - Accepted Version Available under License Creative Commons Attribution. Download (2MB)

Abstract

We develop efficient algorithms of exact simulation for quadratic stochastic intensity models that have become increasingly popular for modeling events arrivals, especially in economics, finance, and insurance. They have huge potential to be applied to many other areas such as operations management, queueing science, biostatistics, and epidemiology. Our algorithms are developed by the principle of exact distributional decomposition, which lies in a fully analytical expression for the joint Laplace transform of quadratic process and its integral newly derived in this paper. They do not involve any numerical Laplace inversion, have been validated by extensive numerical experiments, and substantially outperform all existing alternatives in the literature. Moreover, our algorithms are extendable to multidimensional point processes and beyond Cox processes to additionally incorporate two-sided random jumps with arbitrarily distributed sizes in the intensity for capturing self-exciting and self-correcting effects in event arrivals. Applications to portfolio loss modeling are provided to demonstrate the applicability and flexibility of our algorithms.

Item Type:	Article
Additional Information:	© 2024 INFORMS
Divisions:	Statistics
Subjects:	Q Science > QA Mathematics
Date Deposited:	04 Nov 2024 17:06
Last Modified:	12 Dec 2024 04:33
URI:	http://eprints.lse.ac.uk/id/eprint/125942

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