Functional limit theorems for additive and multiplicative schemes in the Cox-Ingersoll-Ross model

DOI10.15559/16-VMSTA48MaRDI QIDQ340805zbMATH OpenFDO

Authors Yevheniia Munchak, Yuliya S. Mishura

Publication date 15 November 2016

Published in Modern Stochastics. Theory and Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1604.01584

zbMATH Keywords

weak convergencefunctional limit theoremsCox-Ingersoll-Ross processdiscrete approximation scheme

Mathematics Subject Classification ID

Central limit and other weak theorems (60F05) Functional limit theorems; invariance principles (60F17) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80)

Abstract: In this paper, we consider the Cox--Ingersoll--Ross (CIR) process in the regime where the process does not hit zero. We construct additive and multiplicative discrete approximation schemes for the price of asset that is modeled by the CIR process and geometric CIR process. In order to construct these schemes, we take the Euler approximations of the CIR process itself but replace the increments of the Wiener process with iid bounded vanishing symmetric random variables. We introduce a "truncated" CIR process and apply it to prove the weak convergence of asset prices. We establish the fact that this "truncated" process does not hit zero under the same condition considered for the original nontruncated process.

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Cited in

(1)

• Two methods of estimation of the drift parameters of the Cox–Ingersoll–Ross process: Continuous observations

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