Rate of convergence and asymptotic error distribution of Euler approximation schemes for fractional diffusions

Malliavin calculus weak convergence fractional Brownian motion Euler scheme stochastic differential equations fractional calculus fourth moment theorem \(L^{p}\)-convergence

Mathematics Subject Classification ID

Stochastic calculus of variations and the Malliavin calculus (60H07) Central limit and other weak theorems (60F05) Fractional processes, including fractional Brownian motion (60G22) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Fractional derivatives and integrals (26A33) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical solutions to stochastic differential and integral equations (65C30) (L^p)-limit theorems (60F25)

Abstract: For a stochastic differential equation(SDE) driven by a fractional Brownian motion(fBm) with Hurst parameter

H > f r a c 12

, it is known that the existing (naive) Euler scheme has the rate of convergence

n^{1 - 2 H}

. Since the limit

H i g h t a r r o w f r a c 12

of the SDE corresponds to a Stratonovich SDE driven by standard Brownian motion, and the naive Euler scheme is the extension of the classical Euler scheme for It^{o} SDEs for

H = f r a c 12

, the convergence rate of the naive Euler scheme deteriorates for

H i g h t a r r o w f r a c 12

. In this paper we introduce a new (modified Euler) approximation scheme which is closer to the classical Euler scheme for Stratonovich SDEs for

H = f r a c 12

, and it has the rate of convergence

g a m m a_{n}^{- 1}

, where

g a m m a_{n} = n^{2 H - 1 / 2}

when

H < f r a c 34

,

g a m m a_{n} = n / s q r t l o g n

when

H = f r a c 34

and

g a m m a_{n} = n

if

H > f r a c 34

. Furthermore, we study the asymptotic behavior of the fluctuations of the error. More precisely, if

X_{t}, 0 l e t l e T

is the solution of a SDE driven by a fBm and if

X_{t}^{n}, 0 l e t l e T

is its approximation obtained by the new modified Euler scheme, then we prove that

g a m m a_{n} (X^{n} - X)

converges stably to the solution of a linear SDE driven by a matrix-valued Brownian motion, when

H i n (f r a c 12, f r a c 34]

. In the case

H > f r a c 34

, we show the

L^{p}

convergence of

n (X_{t}^{n} - X_{t})

, and the limiting process is identified as the solution of a linear SDE driven by a matrix-valued Rosenblatt process. The rate of weak convergence is also deduced for this scheme. We also apply our approach to the naive Euler scheme.

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