English

Markov-modulated Ornstein-Uhlenbeck processes

Probability 2024-06-06 v1

Abstract

In this paper we consider an Ornstein-Uhlenbeck (OU) process (M(t))t0(M(t))_{t\geqslant 0} whose parameters are determined by an external Markov process (X(t))t0(X(t))_{t\geqslant 0} on a finite state space {1,,d}\{1,\ldots,d\}; this process is usually referred to as Markov-modulated Ornstein-Uhlenbeck (MMOU). We use stochastic integration theory to determine explicit expressions for the mean and variance of M(t)M(t). Then we establish a system of partial differential equations (PDEs) for the Laplace transform of M(t)M(t) and the state X(t)X(t) of the background process, jointly for time epochs t=t1,,tK.t=t_1,\ldots,t_K. Then we use this PDE to set up a recursion that yields all moments of M(t)M(t) and its stationary counterpart; we also find an expression for the covariance between M(t)M(t) and M(t+u)M(t+u). We then establish a functional central limit theorem for M(t)M(t) for the situation that certain parameters of the underlying OU processes are scaled, in combination with the modulating Markov process being accelerated; interestingly, specific scalings lead to drastically different limiting processes. We conclude the paper by considering the situation of a single Markov process modulating multiple OU processes.

Keywords

Cite

@article{arxiv.1412.7952,
  title  = {Markov-modulated Ornstein-Uhlenbeck processes},
  author = {Gang Huang and Marijn Jansen and Michel Mandjes and Peter Spreij and Koen De Turck},
  journal= {arXiv preprint arXiv:1412.7952},
  year   = {2024}
}
R2 v1 2026-06-22T07:44:19.415Z