Positivity-preserving truncated Euler-Maruyama method for generalised Ait-Sahalia-type interest model (Q6181513)

The authors study the Aït-Sahalia type (AIT) model \[ dX(t)=\big[a_{-1}X(t)^{-1}-a_0+a_1X(t)-a_2X(t)^{\gamma}\big] dt + \lambda X(t)^{\theta}\,dB(t),\ t>0; X(0) =X_0, \] where \(X_0, a_{-1}, a_0, a_1, a_2, \lambda\) are positive constants, \(\gamma,\theta>1\), and \(B(\cdot)\) is a scalar Brownian motion. It is known that under appropriate conditions this stochastic differential equation has a unique positive global solution. To find it, a truncated Euler-Maruyama scheme (EM) has been proposed in [\textit{L. Szpruch} et al., BIT 51, No. 2, 405--425 (2011; Zbl 1230.65011)]. The contributions of this paper are the following. First, compared with the convergence results of the truncated EM described in [\textit{C. Emmanuel} and \textit{X. Mao}, J. Comput. Appl. Math. 383, Article ID 113137, 19 p. (2021; Zbl 1448.62146)], the scheme suggested in this paper maintains the property of positiveness. Second, the strong convergence order of truncated EM for the AIT model is obtained under certain reasonable assumptions. Results of numerical testing carried out show that the explicit TEM scheme yields superior results over the implicit BEM scheme.