Modern Stochastics: Theory and Applications

The test for the location of the tangency portfolio on the set of feasible portfolios is proposed when both the population and the sample covariance matrices of asset returns are singular. The particular case of investigation is when the number of observations, n, is smaller than the number of assets, k, in the portfolio, and the asset returns are i.i.d. normally distributed with singular covariance matrix Σ such that $rank(\boldsymbol{\Sigma })=r\lt n\lt k+1$. The exact distribution of the test statistic is derived under both the null and alternative hypotheses. Furthermore, the high-dimensional asymptotic distribution of that test statistic is established when both the rank of the population covariance matrix and the sample size increase to infinity so that $r/n\to c\in (0,1)$. Theoretical findings are completed by comparing the high-dimensional asymptotic test with an exact finite sample test in the numerical study. A good performance of the obtained results is documented. To get a better understanding of the developed theory, an empirical study with data on the returns on the stocks included in the S&P 500 index is provided.

A Markov process defined by some pseudo-differential operator of an order $1\lt \alpha \lt 2$ as the process generator is considered. Using a pseudo-gradient operator, that is, the operator defined by the symbol $i\lambda |\lambda {|^{\beta -1}}$ with some $0\lt \beta \lt 1$, the perturbation of the Markov process under consideration by the pseudo-gradient with a multiplier, which is integrable at some large enough power, is constructed. Such perturbation defines a family of evolution operators, properties of which are investigated. A corresponding Cauchy problem is considered.

Consistent estimators of the baseline hazard rate and the regression parameter are constructed in the Cox proportional hazards model with heteroscedastic measurement errors, assuming that the baseline hazard function belongs to a certain class of functions with bounded Lipschitz constants.

The theory of the so-called ${\mathcal{W}_{q}}$ and ${\mathcal{Z}_{q}}$ scale functions is developped for the fluctuations of right-continuous discrete time and space killed random walks. Explicit expressions are derived for the resolvents and two-sided exit problem when killing depends on the present level of the process. Similar results in the reflected case are also considered. All the expressions are given in terms of new generalisations of the scale functions, which are obtained using arguments different from the continuous case (spectrally negative Lévy processes). Hence, the connections between the two cases are spelled out. For a specific form of the killing function, the probability of bankruptcy is obtained for the model known as omega model in the actuarial literature.

Models of generalized counting processes time-changed by a general inverse subordinator are considered, their distributions are characterized, and governing equations for them are presented. The equations are given in terms of the generalized fractional derivatives, namely, convolution-type derivatives with respect to Bernštein functions. Some particular examples are presented.

The integral with respect to a multidimensional stochastic measure, assuming only its σ-additivity in probability, is studied. The continuity and differentiability of realizations of the integral are established.

Entropic Value-at-Risk (EVaR) measure is a convenient coherent risk measure. Due to certain difficulties in finding its analytical representation, it was previously calculated explicitly only for the normal distribution. We succeeded to overcome these difficulties and to calculate Entropic Value-at-Risk (EVaR) measure for Poisson, compound Poisson, Gamma, Laplace, exponential, chi-squared, inverse Gaussian distribution and normal inverse Gaussian distribution with the help of Lambert function that is a special function, generally speaking, with two branches.

Despite the fact that the theory of stability of continuous-time difference equations has a long history, is well developed and very popular in research, there is a simple and clearly formulated problem about the stability of stochastic difference equations with continuous time and distributed delay, which has not been solved for more than 13 years. This paper offers to readers some generalization on this unsolved problem in the hope that it will help move closer to its solution.

The Gaussian-Volterra process with a linear kernel is considered, its properties are established and projection coefficients are explicitly calculated, i.e. one of possible prediction problems related to Gaussian processes is solved.

Finite mixtures with different regression models for different mixture components naturally arise in statistical analysis of biological and sociological data. In this paper a model of mixtures with varying concentrations is considered in which the mixing probabilities are different for different observations. A modified local linear estimation (mLLE) technique is developed to estimate the regression functions of the mixture component nonparametrically. Consistency of the mLLE is demonstrated. Performance of mLLE and a modified Nadaraya–Watson estimator (mNWE) is assessed via simulations. The results confirm that the mLLE technique overcomes the boundary effect typical to the NWE.