Error distributions for random grid approximations of multidimensional stochastic integrals

DOI10.1214/12-AAP858MaRDI QIDQ1948705zbMATH OpenOpenAlexFDO

Authors Carl Lindberg, Holger Rootzén

Publication date 24 April 2013

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

Full work available at URL https://arxiv.org/abs/1108.5063, https://projecteuclid.org/euclid.aoap/1360682031

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)

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.

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Cited in

(5)

• scientific article; zbMATH DE number 3923793 (Why is no real title available?)
• Discretization error of stochastic integrals
• Discretization error of irregular sampling approximations of stochastic integrals
• Asymptotic error distribution for the Riemann approximation of integrals driven by fractional Brownian motion
• scientific article; zbMATH DE number 2237966 (Why is no real title available?)

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