An implementation of Milstein's method for general bounded diffusions
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Abstract: Despite its generality and powerful convergence properties, Milstein's method for functionals of spatially bounded stochastic differential equations is widely regarded as difficult to implement. This has likely prevented it from being utilised in applications. In this paper, we design and analyse in detail one such implementation. The presented method turns out to be on par with other, popular schemes in terms of computational cost---but with a (nearly) linear weak convergence rate under the usual smoothness requirements on coefficients and boundary. Two byproducts of theoretical interest are a new, non-standard rank-one update formula, and a connection between numerics of bounded diffusions and Eikonal equations. Three examples are worked out, confirming the accuracy and robustness of the method.
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Cited in
(11)- An iterative method for Helmholtz boundary value problems arising in wave propagation
- Cost-efficient monitoring of continuous-time stochastic processes based on discrete observations
- Higher-order adaptive methods for exit times of Itô diffusions
- Heuristics for the probabilistic solution of BVPs with mixed boundary conditions
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- Escape-from-a-layer approach for simulating the boundary local time in Euclidean domains
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