An identification problem in an urn and ball model with heavy tailed distributions

We consider in this paper an urn and ball problem with replacement, where balls are with different colors and are drawn uniformly from a unique urn. The numbers of balls with a given color are i.i.d. random variables with a heavy tailed probability distribution, for instance a Pareto or a Weibull distribution. We draw a small fraction $p\ll 1$ of the total number of balls. The basic problem addressed in this paper is to know to which extent we can infer the total number of colors and the distribution of the number of balls with a given color. By means of Le Cam's inequality and Chen-Stein method, bounds for the total variation norm between the distribution of the number of balls drawn with a given color and the Poisson distribution with the same mean are obtained. We then show that the distribution of the number of balls drawn with a given color has the same tail as that of the original number of balls. We finally establish explicit bounds between the two distributions when each ball is drawn with fixed probability $p$

Dynamics on expanding spaces: modeling the emergence of novelties

Novelties are part of our daily lives. We constantly adopt new technologies, conceive new ideas, meet new people, experiment with new situations. Occasionally, we as individuals, in a complicated cognitive and sometimes fortuitous process, come up with something that is not only new to us, but to our entire society so that what is a personal novelty can turn into an innovation at a global level. Innovations occur throughout social, biological and technological systems and, though we perceive them as a very natural ingredient of our human experience, little is known about the processes determining their emergence. Still the statistical occurrence of innovations shows striking regularities that represent a starting point to get a deeper insight in the whole phenomenology. This paper represents a small step in that direction, focusing on reviewing the scientific attempts to effectively model the emergence of the new and its regularities, with an emphasis on more recent contributions: from the plain Simon's model tracing back to the 1950s, to the newest model of Polya's urn with triggering of one novelty by another. What seems to be key in the successful modelling schemes proposed so far is the idea of looking at evolution as a path in a complex space, physical, conceptual, biological, technological, whose structure and topology get continuously reshaped and expanded by the occurrence of the new. Mathematically it is very interesting to look at the consequences of the interplay between the "actual" and the "possible" and this is the aim of this short review.Comment: 25 pages, 10 figure

Bayesian semiparametric stochastic volatility modeling

This paper extends the existing fully parametric Bayesian literature on stochastic volatility to allow for more general return distributions. Instead of specifying a particular distribution for the return innovation, we use nonparametric Bayesian methods to flexibly model the skewness and kurtosis of the distribution while continuing to model the dynamics of volatility with a parametric structure. Our semiparametric Bayesian approach provides a full characterization of parametric and distributional uncertainty. We present a Markov chain Monte Carlo sampling approach to estimation with theoretical and computational issues for simulation from the posterior predictive distributions. The new model is assessed based on simulation evidence, an empirical example, and comparison to parametric models.Econometric models ; Stochastic analysis

Bayesian semiparametric stochastic volatility modeling

This paper extends the existing fully parametric Bayesian literature on stochastic volatility to allow for more general return distributions. Instead of specifying a particular distribution for the return innovation, nonparametric Bayesian methods are used to flexibly model the skewness and kurtosis of the distribution while the dynamics of volatility continue to be modeled with a parametric structure. Our semiparametric Bayesian approach provides a full characterization of parametric and distributional uncertainty. A Markov chain Monte Carlo sampling approach to estimation is presented with theoretical and computational issues for simulation from the posterior predictive distributions. The new model is assessed based on simulation evidence, an empirical example, and comparison to parametric models.Dirichlet process mixture, MCMC, block sampler

Approximate Models and Robust Decisions

Decisions based partly or solely on predictions from probabilistic models may be sensitive to model misspecification. Statisticians are taught from an early stage that "all models are wrong", but little formal guidance exists on how to assess the impact of model approximation on decision making, or how to proceed when optimal actions appear sensitive to model fidelity. This article presents an overview of recent developments across different disciplines to address this. We review diagnostic techniques, including graphical approaches and summary statistics, to help highlight decisions made through minimised expected loss that are sensitive to model misspecification. We then consider formal methods for decision making under model misspecification by quantifying stability of optimal actions to perturbations to the model within a neighbourhood of model space. This neighbourhood is defined in either one of two ways. Firstly, in a strong sense via an information (Kullback-Leibler) divergence around the approximating model. Or using a nonparametric model extension, again centred at the approximating model, in order to `average out' over possible misspecifications. This is presented in the context of recent work in the robust control, macroeconomics and financial mathematics literature. We adopt a Bayesian approach throughout although the methods are agnostic to this position