Convergence of the Euler--Maruyama method for stochastic differential equations with Markovian switching. (Q1427725): Difference between revisions

The Euler-Maruyama numerical method for stochastic differential equations is generalized to obtain a numerical method for approximating the solution of the \(m\)-dimensional stochastic differential equation with Markovian switching \[ dy(t)= f(y(t), r(t))\,dt+ g(y(t), r(t))\,dw(t),\quad 0\leq t\leq T, \] where \(y(0)= y_0\in \mathbb{R}^m\), \(r(0)= i_0\in S= \{1,2,\dots, N\}\), \(f: \mathbb{R}^m\times S\to \mathbb{R}^m\), \(g: \mathbb{R}^m\times S\to \mathbb{R}^{m+ d}\), \(w(t)\) is a \(d\)-dimensional Brownian motion, and \(r(t)\) is a right-continuous Markov chain. Theorems are proved that establish the strong convergence of the approximate solutions generated by this method to the exact solution and estimate the error incurred. Favorable numerical results obtained for an example whose solution's asymptotic behavior is known are summarized and discussed.