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TAIL BEHAVIOR OF STOPPED LÉVY PROCESSES WITH MARKOV MODULATION
Published online by Cambridge University Press: 13 July 2021
Abstract
This article concerns the tail probabilities of a light-tailed Markov-modulated Lévy process stopped at a state-dependent Poisson rate. The tails are shown to decay exponentially at rates given by the unique positive and negative roots of the spectral abscissa of a certain matrix-valued function. We illustrate the use of our results with an application to the stationary distribution of wealth in a simple economic model in which agents with constant absolute risk aversion are subject to random mortality and income fluctuation.
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- Econometric Theory , Volume 38 , Issue 5: YALE 2018 CONFERENCE IN HONOR OF PETER C. B. PHILLIPS: PART I , October 2022 , pp. 986 - 1013
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- © The Author(s), 2021. Published by Cambridge University Press
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