Optimizing Erlangization-based approximations for finite discrete distributions and discrete phase-type distributions

Abstract

In He et al.[8], continuous phase-type (PH) distributions are constructed to approximate finite discrete probability distributions and discrete PH-distributions. The approximations are based on Erlangization with a fixed number of phases. In this article, we first introduce continuous PH approximations with Erlang distributions of different orders. Then we develop an algorithm to find the continuous PH approximation with the minimum variance, among all such PH approximations with the same total number of phases. Thus, the proposed continuous PH approximations lead to a smaller gap between the variances of the Erlangization-based approximations and the original discrete random variables, which is achieved without adding more phases. The new approximations are useful to mitigate the burden in computation caused by the large number of phases needed in Erlangization approximation. Stochastic dominance is shown between the original (discrete) distributions and the approximations, which leads to bounds on the quantities of original distributions and/or stochastic models (e.g., reliability models). The approximation method is applied to analyze reliability models and a COVID-19 isolation program.