SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
User avatar
AdareIre
Topic Author
Posts: 26
Joined: August 15th, 2009, 3:42 pm

Infinitely Divisible Density Continuous?

June 8th, 2012, 8:36 am

Intuitively it seems that an infinitely divisible distribution should be continuous but I don't see how it comes into play in the definition of a Levy process or in the Levy-Khinthcine formula?I am particularly concerned with continuity at the origin? Or whether the density function should even be differentiable?Thanks in advance
Last edited by AdareIre on June 7th, 2012, 10:00 pm, edited 1 time in total.
 
User avatar
ACD
Posts: 107
Joined: April 19th, 2004, 8:09 am

Infinitely Divisible Density Continuous?

June 8th, 2012, 9:05 am

Poisson distribution is infinitely divisible and is a discrete distribution (Poisson process is a Levy process), there are several others (negative binomial for example) so your intuition is off the mark.
 
User avatar
AdareIre
Topic Author
Posts: 26
Joined: August 15th, 2009, 3:42 pm

Infinitely Divisible Density Continuous?

June 8th, 2012, 9:41 am

Sorry for ambiguity in my previous post.I understand that discrete distributions can be infinitely divisible.Consider a strictly positive density function f(x) defined for all x\in(-\infty,\infty). Can f be infinitely divisible if it has a discontinuity at a certain point ? e.g. say a discontinuity at x = 0 such thatMust f also be differentiable for x\in(-\infty,\infty) to be infinitely divisible?
Last edited by AdareIre on June 7th, 2012, 10:00 pm, edited 1 time in total.
 
User avatar
eh
Posts: 494
Joined: March 2nd, 2010, 9:26 am

Infinitely Divisible Density Continuous?

June 8th, 2012, 10:33 am

The density of the marginal law of Levy process does not necessarily exist.I don't see anything intuitive about a density being continuous. K. Sato's book discusses distribution properties of the marginal laws of Levy processes. Look at that.
 
User avatar
AdareIre
Topic Author
Posts: 26
Joined: August 15th, 2009, 3:42 pm

Infinitely Divisible Density Continuous?

June 8th, 2012, 11:45 am

Thanks eh for your comments,My intuition was coming from the perspective that if an inf div density f exists which has a discontinuity at some point. Then there exist a density function f_n such that an n-fold convolution of f_n with itself gives f. I find it hard to see how an n-fold convolution of any function could produce a function with a discontinuity. It seems to me that the resultant density would be smooth.Analogously, suppose the random variable X has a density f and the random variable X_n has a density function f_n as described above. Again it seems strange that the sum of n X_n random variables would have a density function which is not smooth or continuous at least.Unfortunately there is not a copy of Sato in the Library....
 
User avatar
Alan
Posts: 10497
Joined: December 19th, 2001, 4:01 am
Location: California
Contact:

Infinitely Divisible Density Continuous?

June 8th, 2012, 1:17 pm

QuoteOriginally posted by: AdareIreThanks eh for your comments,My intuition was coming from the perspective that if an inf div density f exists which has a discontinuity at some point. Then there exist a density function f_n such that an n-fold convolution of f_n with itself gives f. I find it hard to see how an n-fold convolution of any function could produce a function with a discontinuity. It seems to me that the resultant density would be smooth.Suppose the support of f is a lattice (say +/- n, n an integer). Then, so will be the convolutions ...
 
User avatar
AdareIre
Topic Author
Posts: 26
Joined: August 15th, 2009, 3:42 pm

Infinitely Divisible Density Continuous?

June 8th, 2012, 2:32 pm

I have worked through some examples with a discontinuity at zero and indeed it does seem to be okay!Suppose f is an infinitely divisible 2-EPT function with no pointmass at zero but is discontinuous at zero. Let f_n be the density function corresponding to the n^th root of the characteristic function of f. As f is discontinuous at zero f_n will have a pointmass at zero.I have no proof of this but it seems to work and make intuitive sense!! Thanks

  • Advertisement

ABOUT WILMOTT

PW by JB

Wilmott.com has been "Serving the Quantitative Finance Community" since 2001. Continued...


Twitter LinkedIn Instagram

JOBS BOARD

JOBS BOARD

Looking for a quant job, risk, algo trading,...? Browse jobs here...


GZIP: On