We propose a class of strongly efficient rare-event simulation estimators for random walks and compound Poisson processes with a regularly varying increment/jump-size distribution in a general large deviations regime. Our estimator is based on an importance sampling strategy that hinges on a recently established heavy-tailed sample-path large deviations result. The new estimators are straightforward to implement and can be used to systematically evaluate the probability of a wide range of rare events with bounded relative error. They are “universal” in the sense that a single importance sampling scheme applies to a very general class of rare events that arise in heavy-tailed systems. In particular, our estimators can deal with rare events that are caused by multiple big jumps (therefore, beyond the usual principle of a single big jump) as well as multidimensional processes such as the buffer content process of a queueing network. We illustrate the versatility of our approach with several applications that arise in the context of mathematical finance, actuarial science, and queueing theory.
Bibliographical noteFunding Information:
Funding: The work of B. Chen, C-H. Rhee, and B. Zwart was supported by the Netherlands Orga-nisation for Scientific Research [Vici Grant 639.033.413]. The work of J. Blanchet was supported by the National Science Foundation [Grants 132055, 1538217, 1820942] and the Defense Advanced Research Projects Agency [Grant N660011824028].
© 2019 INFORMS
- Compound Poisson processes
- Large deviations results
- Principle of multiple big jumps
- Random walks
- Rare-event simulation
- Regularly varying distribution
- Strong efficiency