A Numerical Approach for Evaluating the Time-Dependent Distribution of a Quasi Birth-Death Process

Michel Mandjes and Birgit Sollie ()
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Michel Mandjes: University of Amsterdam
Birgit Sollie: Vrije Universiteit Amsterdam

Methodology and Computing in Applied Probability, 2022, vol. 24, issue 3, 1693-1715

Abstract: Abstract This paper considers a continuous-time quasi birth-death (qbd) process, which informally can be seen as a birth-death process of which the parameters are modulated by an external continuous-time Markov chain. The aim is to numerically approximate the time-dependent distribution of the resulting bivariate Markov process in an accurate and efficient way. An approach based on the Erlangization principle is proposed and formally justified. Its performance is investigated and compared with two existing approaches: one based on numerical evaluation of the matrix exponential underlying the qbd process, and one based on the uniformization technique. It is shown that in many settings the approach based on Erlangization is faster than the other approaches, while still being highly accurate. In the last part of the paper, we demonstrate the use of the developed technique in the context of the evaluation of the likelihood pertaining to a time series, which can then be optimized over its parameters to obtain the maximum likelihood estimator. More specifically, through a series of examples with simulated and real-life data, we show how it can be deployed in model selection problems that involve the choice between a qbd and its non-modulated counterpart.

Keywords: Quasi birth-death processes; Time-dependent probabilities; Erlang distribution; Maximum likelihood estimation; 60J22; 92D25; 62Fxx (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11009-021-09882-6

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