Error distributions for random grid approximations of multidimensional stochastic integrals

DOI10.1214/12-AAP858zbMATH Open1290.60025arXiv1108.5063OpenAlexW3104422597MaRDI QIDQ1948705FDOQ1948705

Authors: Carl Lindberg, Holger Rootzén 

Publication date: 24 April 2013

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: This paper proves joint convergence of the approximation error for several stochastic integrals with respect to local Brownian semimartingales, for nonequidistant and random grids. The conditions needed for convergence are that the Lebesgue integrals of the integrands tend uniformly to zero and that the squared variation and covariation processes converge. The paper also provides tools which simplify checking these conditions and which extend the range for the results. These results are used to prove an explicit limit theorem for random grid approximations of integrals based on solutions of multidimensional SDEs, and to find ways to "design" and optimize the distribution of the approximation error. As examples we briefly discuss strategies for discrete option hedging.

Full work available at URL: https://arxiv.org/abs/1108.5063

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zbMATH Keywords

stochastic integralsapproximation errorrandom gridmultidimensional stochastic differential equationjoint weak convergencediscrete option hedgingportfolio tracking errorrandom evaluation times

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Central limit and other weak theorems (60F05) Martingales with continuous parameter (60G44) Stochastic integrals (60H05) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35)

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Cited In (5)

• Discretization error of irregular sampling approximations of stochastic integrals
• Title not available (Why is that?)
• Title not available (Why is that?)
• Discretization error of stochastic integrals
• Asymptotic error distribution for the Riemann approximation of integrals driven by fractional Brownian motion

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