The Euler-Maruyama approximation for the absorption time of the CEV diffusion

DOI10.3934/DCDSB.2012.17.1455MaRDI QIDQ432579zbMATH OpenOpenAlexWikidataFDO

Authors Pavel Chigansky, Fima Klebaner

Publication date 4 July 2012

Published in Discrete and Continuous Dynamical Systems. Series B (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1108.0307

zbMATH Keywords

weak convergencediffusionCEV modelEuler-Maruyama schemeabsorption times

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) Functional limit theorems; invariance principles (60F17) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35)

Abstract: A standard convergence analysis of the simulation schemes for the hitting times of diffusions typically requires non-degeneracy of their coefficients on the boundary, which excludes the possibility of absorption. In this paper we consider the CEV diffusion from the mathematical finance and show how a weakly consistent approximation for the absorption time can be constructed, using the Euler-Maruyama scheme.

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(2)

• The Euler-Maruyama approximations for the CEV model
• Approximating exit times of continuous Markov processes

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