Quantification of model uncertainty on path-space via goal-oriented relative entropy

Department of Mathematics and Statistics, University of Massachusetts Amherst, Amherst, MA 01003, USA

^* Corresponding author: birrell@math.umass.edu

Received: 27 March 2020
Accepted: 5 October 2020

Abstract

Quantifying the impact of parametric and model-form uncertainty on the predictions of stochastic models is a key challenge in many applications. Previous work has shown that the relative entropy rate is an effective tool for deriving path-space uncertainty quantification (UQ) bounds on ergodic averages. In this work we identify appropriate information-theoretic objects for a wider range of quantities of interest on path-space, such as hitting times and exponentially discounted observables, and develop the corresponding UQ bounds. In addition, our method yields tighter UQ bounds, even in cases where previous relative-entropy-based methods also apply, e.g., for ergodic averages. We illustrate these results with examples from option pricing, non-reversible diffusion processes, stochastic control, semi-Markov queueing models, and expectations and distributions of hitting times.