Large deviations for Markov-modulated diffusion processes with rapid switching

Gang Huang, Michel Mandjes and Peter Spreij

Stochastic Processes and their Applications, 2016, vol. 126, issue 6, 1785-1818

Abstract: In this paper, we study small noise asymptotics of Markov-modulated diffusion processes in the regime that the modulating Markov chain is rapidly switching. We prove the joint sample-path large deviations principle for the Markov-modulated diffusion process and the occupation measure of the Markov chain (which evidently also yields the large deviations principle for each of them separately by applying the contraction principle). The structure of the proof is such that we first prove exponential tightness, and then establish a local large deviations principle (where the latter part is split into proving the corresponding upper bound and lower bound).

Keywords: Diffusion processes; Markov modulation; Large deviations; Stochastic exponentials; Occupation measure (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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DOI: 10.1016/j.spa.2015.12.005

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