English

Distributional Robustness and Uncertainty Quantification for Rare Events

Probability 2019-11-22 v1

Abstract

Rare events, and more general risk-sensitive quantities-of-interest (QoIs), are significantly impacted by uncertainty in the tail behavior of a distribution. Uncertainty in the tail can take many different forms, each of which leads to a particular ambiguity set of alternative models. Distributional robustness bounds over such an ambiguity set constitute a stress-test of the model. In this paper we develop a method, utilizing R\'enyi-divergences, of constructing the ambiguity set that captures a user-specified form of tail-perturbation. We then obtain distributional robustness bounds (performance guarantees) for risk-sensitive QoIs over these ambiguity sets, using the known connection between R\'enyi-divergences and robustness for risk-sensitive QoIs. We also expand on this connection in several ways, including a generalization of the Donsker-Varadhan variational formula to R\'enyi divergences, and various tightness results. These ideas are illustrated through applications to uncertainty quantification in a model of lithium-ion battery failure, robustness of large deviations rate functions, and risk-sensitive distributionally robust optimization for option pricing.

Keywords

Cite

@article{arxiv.1911.09580,
  title  = {Distributional Robustness and Uncertainty Quantification for Rare Events},
  author = {Jeremiah Birrell and Paul Dupuis and Markos A. Katsoulakis and Luc Rey-Bellet and Jie Wang},
  journal= {arXiv preprint arXiv:1911.09580},
  year   = {2019}
}

Comments

46 pages, 6 figures

R2 v1 2026-06-23T12:23:35.208Z