Importance sampling and statistical Romberg method for Lévy processes

DOI10.1016/J.SPA.2015.12.008MaRDI QIDQ271865zbMATH OpenOpenAlexFDO

Authors Mohamed Ben Alaya, Kaouther Hajji, Ahmed Kebaier

Publication date 20 April 2016

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1408.0898

zbMATH Keywords

central limit theoremsCGMY modelEsscher transformLévy processesMonte Carlo methodstatistical Romberg methodvariance reduction

Mathematics Subject Classification ID

Infinitely divisible distributions; stable distributions (60E07) Central limit and other weak theorems (60F05) Processes with independent increments; Lévy processes (60G51) Stochastic approximation (62L20) Monte Carlo methods (65C05) Numerical methods (including Monte Carlo methods) (91G60)

Abstract: An important family of stochastic processes arising in many areas of applied probability is the class of L'evy processes. Generally, such processes are not simulatable especially for those with infinite activity. In practice, it is common to approximate them by truncating the jumps at some cut-off size $varepsilon$ ($varepsilonsearrow0$). This procedure leads us to consider a simulatable compound Poisson process. This paper first introduces, for this setting, the statistical Romberg method to improve the complexity of the classical Monte Carlo one. Roughly speaking, we use many sample paths with a coarse cut-off $$ $$, and few additional sample paths with a fine cut-off $varepsilon$. Central limit theorems of Lindeberg-Feller type for both Monte Carlo and statistical Romberg method for the inferred errors depending on the parameter $varepsilon$ are proved. This leads to an accurate description of the optimal choice of parameters with explicit limit variances. Afterwards, the authors propose a stochastic approximation method of finding the optimal measure change by Esscher transform for L'evy processes with Monte Carlo and statistical Romberg importance sampling variance reduction. Furthermore, we develop new adaptive Monte Carlo and statistical Romberg algorithms and prove the associated central limit theorems. Finally, numerical simulations are processed to illustrate the efficiency of the adaptive statistical Romberg method that reduces at the same time the variance and the computational effort associated to the effective computation of option prices when the underlying asset process follows an exponential pure jump CGMY model.

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Cited in

(6)

• New methods of simulating Lévy processes
• Central limit theorem for the antithetic multilevel Monte Carlo method
• Optimal importance sampling for Lévy processes
• Robust Optimization of PDEs with Random Coefficients Using a Multilevel Monte Carlo Method
• An importance sampling method based on the density transformation of Lévy processes
• Importance sampling and statistical Romberg method

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