Exact and high-order discretization schemes for Wishart processes and their affine extensions
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affine processesBartlett's decompositionBrownian motionsCox-Ingersoll-Ross processdiscretization schemesexact simulationstochastic differential equationWishart distributionsWishart processes
PDEs with randomness, stochastic partial differential equations (35R60) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Brownian motion (60J65) Numerical solutions to stochastic differential and integral equations (65C30) Stochastic models in economics (91B70)
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.
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Cited in
(22)- On the application of Wishart process to the pricing of equity derivatives: the multi-asset case
- The log-asset dynamic with Euler-Maruyama scheme under Wishart processes
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- Commodity options pricing under Wishart stochastic volatility model equipped with jump process: model calibration by an optimized neural network
- Long-term yield in an affine HJM framework on \(S_{d}^{+}\)
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