Subset simulation (SS) is widely held as a powerful technique for evaluating small failure probabilities. Variance estimation is integral to assessing the uncertainty of the probability estimate. However, variance estimation for SS is complex as samples are generated by Markov chain Monte Carlo (MCMC), resulting in an intricate web of correlations that fall under three categories: (1) within a chain (intrachain), (2) across separate chains (interchain), and (3) between subset levels (interlevel). To date, hardly any advances have been made on this challenging topic. Most studies using SS adopt the conventional variance estimation method, which considers the intrachain correlation but neglects other correlation types. In a recent study, the authors showed that all three correlation types are important, and developed a method that accounts for the intrachain and interchain correlations. This paper presents a theoretical framework for the interlevel correlations, bridging the final gap and illuminating a long-standing unsolved problem. The method utilizes information available from a single SS run. The equations reveal fascinating insights concerning the mechanism of interlevel correlations, valuable to researchers working on enhancing MCMC algorithms for SS. Among other things, it is mathematically proven that if samples within a level are independent, this level and the next must be independent. The new model is integrated with the prior work to produce a variance estimation method that incorporates all sources of correlations. Case studies with multiple independent SS runs show that the proposed method estimates the variance accurately, providing a vast improvement over the conventional method.
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