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Generalized Rank Dirichlet distributions

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  • Itkin, David

Abstract

We study a new parametric family of distributions on the ordered simplex ∇d−1={y∈Rd:y1≥⋯≥yd≥0,∑k=1dyk=1}, which we call Generalized Rank Dirichlet (GRD) distributions. Their density is proportional to ∏k=1dykak−1 for a parameter a=(a1,…,ad)∈Rd satisfying ak+ak+1+⋯+ad>0 for k=2,…,d. The density is similar to the Dirichlet distribution, but is defined on ∇d−1, leading to different properties. In particular, certain components ak can be negative. Random variables Y=(Y1,…,Yd) with GRD distributions have previously been used to model capital distribution in financial markets and more generally can be used to model ranked order statistics of weight vectors. We obtain for any dimension dexplicit expressions for moments of order M∈N for the Yk’s and moments of all orders for the log gaps Zk=logYk−1−logYk when a1+⋯+ad=−M. Additionally, we propose an algorithm to exactly simulate random variates in this case. In the general case a1+⋯+ad∈R we obtain series representations for these quantities and provide an approximate simulation algorithm.

Suggested Citation

  • Itkin, David, 2024. "Generalized Rank Dirichlet distributions," Statistics & Probability Letters, Elsevier, vol. 205(C).
    • Handle: RePEc:eee:stapro:v:205:y:2024:i:c:s0167715223001748
    DOI: 10.1016/j.spl.2023.109950
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    References listed on IDEAS

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    1. David Itkin & Martin Larsson, 2021. "Open Markets and Hybrid Jacobi Processes," Papers 2110.14046, arXiv.org, revised Mar 2024.
    2. Tomoyuki Ichiba & Vassilios Papathanakos & Adrian Banner & Ioannis Karatzas & Robert Fernholz, 2009. "Hybrid Atlas models," Papers 0909.0065, arXiv.org, revised Apr 2011.
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