Implementable coupling of Lévy process and Brownian motion
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Publication:2239264
DOI10.1016/J.SPA.2021.09.008zbMATH Open1479.60096arXiv2103.11475OpenAlexW3137823413MaRDI QIDQ2239264FDOQ2239264
Authors: Vladimir Fomichov, Jorge González Cázares, Jevgenijs Ivanovs 
Publication date: 3 November 2021
Published in: Stochastic Processes and their Applications (Search for Journal in Brave)
Abstract: We provide a simple algorithm for construction of Brownian paths approximating those of a L'evy process on a finite time interval. It requires knowledge of the L'evy process trajectory on a chosen regular grid and the law of its endpoint, or the ability to simulate from that. This algorithm is based on reordering of Brownian increments, and it can be applied in a recursive manner. We establish an upper bound on the mean squared maximal distance between the paths and determine a suitable mesh size in various asymptotic regimes. The analysis proceeds by reduction to the comonotonic coupling of increments. Applications to model risk and multilevel Monte Carlo are discussed in detail, and numerical examples are provided.
Full work available at URL: https://arxiv.org/abs/2103.11475
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Processes with independent increments; Lévy processes (60G51) Brownian motion (60J65) Functional limit theorems; invariance principles (60F17)
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