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Weak convergence of Markov-modulated diffusion processes with rapid switching

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  • Huang, Gang
  • Mandjes, Michel
  • Spreij, Peter

Abstract

In this paper, we study the weak convergence of a sequence of Markov-modulated diffusion processes when the modulating Markov chain is ergodic and rapidly switching. We prove, in particular, its tightness property based on Aldous’ tightness criterion.

Suggested Citation

  • Huang, Gang & Mandjes, Michel & Spreij, Peter, 2014. "Weak convergence of Markov-modulated diffusion processes with rapid switching," Statistics & Probability Letters, Elsevier, vol. 86(C), pages 74-79.
    • Handle: RePEc:eee:stapro:v:86:y:2014:i:c:p:74-79
    DOI: 10.1016/j.spl.2013.12.013
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    References listed on IDEAS

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    1. David D. Yao & Qing Zhang & Xun Yu Zhou, 2006. "A Regime-Switching Model for European Options," International Series in Operations Research & Management Science, in: Houmin Yan & George Yin & Qing Zhang (ed.), Stochastic Processes, Optimization, and Control Theory: Applications in Financial Engineering, Queueing Networks, and Manufacturing Systems, chapter 0, pages 281-300, Springer.
    2. Robert Elliott & Tak Kuen Siu, 2009. "On Markov-modulated Exponential-affine Bond Price Formulae," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(1), pages 1-15.
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    Cited by:

    1. Huang, Gang & Mandjes, Michel & Spreij, Peter, 2016. "Large deviations for Markov-modulated diffusion processes with rapid switching," Stochastic Processes and their Applications, Elsevier, vol. 126(6), pages 1785-1818.

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