The noise statistics of optically demodulated signal of the recently proposed modulation format, namely differential polarization-phase-shift keying, are analyzed. It is found that, in the linear regime, the Gaussian approximation is reasonably accurate in estimating the BER. In the nonlinear regime, the noise of the demodulated signal is dominated by the effect of nonlinear phase noise and obeys chi-squared statistics with a degree of freedom of one. Gaussian approximation underestimates the BER in the nonlinear regime. A two-step BER estimation method accounting for both linear beat noise and nonlinear phase noise is proposed. The effectiveness of this two-step BER estimation method at all power levels has been established by comparison with direct error counting.
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