Simple bounds for terminating Poisson and renewal shock processes |
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Institution: | 1. Financial Risk Control Unit, Banca Carige, Via Cassa di Risparmio 15,16123 Genova, Italy;2. Department of Statistical Sciences, University of Bologna, Italy;3. Department of Economics, University College London, WC1E 6BT, United Kingdom;4. Institute of Fiscal Studies, United Kingdom;5. CREATES, University of Aarhus, Denmark;6. Department of Economics, University of Copenhagen, 1353 Copenhagen K, Denmark;1. School of Finance, Guangdong University of Foreign Studies, 510006 Guangzhou, PR China;2. College of Business Administration, Hunan University, 410082 Changsha, PR China;3. School of Finance, Shanghai University of Finance and Economics, 200433 Shanghai, PR China |
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Abstract: | A system subject to a point process of shocks is considered. The shocks occur in accordance with a renewal process or a nonhomogeneous Poisson process. Each shock independently of the previous history leads to a system failure with probability θ and is survived with a complimentary probability . A number of problems in reliability and safety analysis can be interpreted by means of this model. The exact solution for the probability of survival can be obtained only in the form of infinite series (renewal process of shocks). Approximate solutions and new simple bounds for the probability of survival are obtained. The introduced method is based on the notion of a stochastic hazard rate process. A supplementary characteristic in this analysis is the mean of the hazard rate process. This method makes it possible to consider a generalization important in practical applications when the probability of a system failure under the effect of a current shock depends on the time since the previous one. |
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