Random Variables, Monotone Relations and Convex Analysis
Abstract
Random variables can be described by their cumulative distribution functions, a class of nondecreasing functions on the real line. Those functions can in turn be identified, after the possible vertical gaps in their graphs are filled in, with maximal monotone relations. Such relations are known to be the subdifferentials of convex functions. Analysis of these connections yields new insights. The generalized inversion operation between distribution functions and quantile functions corresponds to graphical inversion of monotone relations. In subdifferential terms, it corresponds to passing to conjugate convex functions under the Legendre-Fenchel transform. Among other things, this shows that convergence in distribution for sequences of random variables is equivalent to graphical convergence of the monotone relations and epigraphical convergence of the associated convex functions. Measures of risk that employ quantiles (VaR) and superquantiles (CVaR), either individually or in mixtures, are illuminated in this way. Formulas for their calculation are seen from a perspective that reveals how they were discovered. The approach leads further to developments in which the superquantiles for a given distribution are interpreted as the quantiles for an overlying "superdistribution." In this way a generalization of Koenker-Basset error is derived which lays a foundation for superquantile regression as a higher-order extension of quantile regression.
Document Details
- Document Type
- Technical Report
- Publication Date
- Dec 20, 2012
- Accession Number
- ADA580236
Entities
People
- Johannes Ø. Røyset
- R. T. Rockafellar
Organizations
- Naval Postgraduate School