Exact and high-order discretization schemes for Wishart processes and their affine extensions

DOI10.1214/12-AAP863zbMATH Open1269.65003arXiv1006.2281OpenAlexW3102082312MaRDI QIDQ1950261FDOQ1950261

Authors: Abdelkoddousse Ahdida, Aurélien Alfonsi 

Publication date: 10 May 2013

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

Abstract: This work deals with the simulation of Wishart processes and affine diffusions on positive semidefinite matrices. To do so, we focus on the splitting of the infinitesimal generator, in order to use composition techniques as Ninomiya and Victoir or Alfonsi. Doing so, we have found a remarkable splitting for Wishart processes that enables us to sample exactly Wishart distributions, without any restriction on the parameters. It is related but extends existing exact simulation methods based on Bartlett's decomposition. Moreover, we can construct high-order discretization schemes for Wishart processes and second-order schemes for general affine diffusions. These schemes are in practice faster than the exact simulation to sample entire paths. Numerical results on their convergence are given.

Full work available at URL: https://arxiv.org/abs/1006.2281

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zbMATH Keywords

stochastic differential equationexact simulationBrownian motionsaffine processesWishart processesCox-Ingersoll-Ross processdiscretization schemesWishart distributionsBartlett's decomposition

Mathematics Subject Classification ID

Brownian motion (60J65) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) PDEs with randomness, stochastic partial differential equations (35R60) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical solutions to stochastic differential and integral equations (65C30) Stochastic models in economics (91B70)

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Cited In (21)

• On two numerical problems in applied probability : discretization of Stochastic Differential Equations and optimization of an expectation depending on a parameter
• Calibration and advanced simulation schemes for the Wishart stochastic volatility model
• The explicit Laplace transform for the Wishart process
• Long-time large deviations for the multiasset Wishart stochastic volatility model and option pricing
• Long-term yield in an affine HJM framework on \(S_{d}^{+}\)
• Transform formulae for linear functionals of affine processes and their bridges on positive semidefinite matrices
• A perturbation analysis of stochastic matrix Riccati diffusions
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• On strong solutions for positive definite jump diffusions
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• A new class of multidimensional Wishart-based hybrid models
• European option pricing under Wishart processes
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• On the application of Wishart process to the pricing of equity derivatives: the multi-asset case
• Maximum principles for boundary-degenerate second order linear elliptic differential operators
• Explosion time for some Laplace transforms of the Wishart process
• The log-asset dynamic with Euler-Maruyama scheme under Wishart processes
• Forward starting options pricing under a regime-switching jump-diffusion model with Wishart stochastic volatility and stochastic interest rate

Uses Software

• AS 53

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