On weak approximations of CIR equation with high volatility

DOI10.1016/J.MATCOM.2009.11.001MaRDI QIDQ2270458zbMATH OpenOpenAlexFDO

Authors Vigirdas Mackevičius

Publication date 18 March 2010

Published in Mathematics and Computers in Simulation (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/j.matcom.2009.11.001

zbMATH Keywords

CIR equationsimulationsplit-step schemeweak approximation

Mathematics Subject Classification ID

Numerical solutions to stochastic differential and integral equations (65C30)

Review text

The author presents a splitting technique for the scalar stochastic Cox-Ingersoll-Ross model which is weak order two and preserves positivity. The splitting at each step is into a deterministic component, solved exactly, and an Itô stochastic component, which is approximated in distribution.

Recommendations

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Cites work

• A theory of the term structure of interest rates
• Expansion of the global error for numerical schemes solving stochastic differential equations
• High order discretization schemes for the CIR process: application to affine term structure and heston models
• scientific article; zbMATH DE number 52588 (Why is no real title available?)
• Modeling with Itô Stochastic Differential Equations
• On the discretization schemes for the CIR (and Bessel squared) processes
• On weak approximations of \((a, b)\)-invariant diffusions
• Second-order weak approximations for Stratonovich stochastic differential equations
• Weak Approximation of Stochastic Differential Equations and Application to Derivative Pricing

Cited in

(8)

• Approximation of Markov semigroups in total variation distance under an irregular setting: an application to the CIR process
• Weak approximation of Heston model by discrete random variables
• Verhulst versus CIR
• High order discretization schemes for the CIR process: application to affine term structure and heston models
• Weak approximation of CIR equation by discrete random variables
• An adaptive splitting method for the Cox-Ingersoll-Ross process
• Weak approximation of CKLS and CEV processes by discrete random variables
• On weak approximations of \((a, b)\)-invariant diffusions

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