Cubature on Wiener space: pathwise convergence

DOI10.1007/S00245-012-9187-8zbMATH Open1276.60069arXiv1304.4623OpenAlexW2106798317MaRDI QIDQ358624FDOQ358624

Authors: Christian Bayer, Peter Friz 

Publication date: 9 August 2013

Published in: Applied Mathematics and Optimization (Search for Journal in Brave)

Abstract: Cubature on Wiener space [Lyons, T.; Victoir, N.; Proc. R. Soc. Lond. A 8 January 2004 vol. 460 no. 2041 169-198] provides a powerful alternative to Monte Carlo simulation for the integration of certain functionals on Wiener space. More specifically, and in the language of mathematical finance, cubature allows for fast computation of European option prices in generic diffusion models. We give a random walk interpretation of cubature and similar (e.g. the Ninomiya--Victoir) weak approximation schemes. By using rough path analysis, we are able to establish weak convergence for general path-dependent option prices.

Full work available at URL: https://arxiv.org/abs/1304.4623

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zbMATH Keywords

cubaturerough pathspricing of path-dependent optionsweak approximation schemes for SDEs

Mathematics Subject Classification ID

Numerical integration (65D30) Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80)

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Cited In (10)

• Cubature on Wiener space continued
• Testing cubature formulae on Wiener space versus explicit pricing formulae
• Efficient and Practical Implementations of Cubature on Wiener Space
• Central limit theorems for non-symmetric random walks on nilpotent covering graphs. I
• Lévy area with a drift as a renormalization limit of Markov chains on periodic graphs
• Semi-closed form cubature and applications to financial diffusion models
• Cubature on Wiener space in infinite dimension
• Cubature methods for stochastic (partial) differential equations in weighted spaces
• Cubature on Wiener space
• Cubature on Wiener space for McKean-Vlasov SDEs with smooth scalar interaction

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