A unified approach to the study of tail probabilities of compound distributions

Abstract

We consider the tail probabilities of a class of compound distributions. First, the relations between reliability distribution classes and heavy-tailed distributions are discussed. These relations reveal that many previous results on estimating the tail probabilities are not applicable to heavy-tailed distributions. Then, a generalized Wald's identity and identities for compound geometric distributions are presented in terms of renewal processes. Using these identities, lower and upper bounds for the tail probabilities are derived in a unified way for the class of compound distributions, both under the conditions of NBU and NWU tails, which include exponential tails, as well as under the condition of heavy-tailed distributions. Finally, simplified bounds are derived by the technique of stochastic ordering. This method removes some unnecessary technical assumptions and corrects errors in the proof of some previous results.