Exact simulation for solutions of one-dimensional stochastic differential equations with discontinuous drift

DOI10.1051/PS/2013053MaRDI QIDQ5174375zbMATH OpenOpenAlexFDO

Authors Pierre Etoré, Miguel Martinez

Publication date 17 February 2015

Published in ESAIM: Probability and Statistics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1301.3019

zbMATH Keywords

algorithmBrownian motion with two-valued driftconvergenceexact simulation methodslocal timenumerical examplesone-dimensional diffusionskew Brownian motionsystem of stochastic differential equations

Mathematics Subject Classification ID

Ordinary differential equations and systems with randomness (34F05) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical solutions to stochastic differential and integral equations (65C30) Stability and convergence of numerical methods for ordinary differential equations (65L20)

Abstract: In this note we propose an exact simulation algorithm for the solution of dX_t=dW_t+b(X_t)dt (1) where b is a smooth real function except at point 0 where b(0+) eq b(0-). The main idea is to sample an exact skeleton of X using an algorithm deduced from the convergence of the solutions of the skew perturbed equation dX^�eta_t=dW_t+b(X^�eta_t)dt + �eta dL^0_t {X^�eta} (2) towards X solution of (1) as �eta tends to 0. In this note, we show that this convergence induces the convergence of exact simulation algorithms proposed by the authors in cite{etoremartinez1} for the solutions of (2) towards a limit algorithm. Thanks to stability properties of the rejection procedures involved as �eta tends to 0, we prove that this limit algorithm is an exact simulation algorithm for the solution of the limit equation (1). Numerical examples are shown to illustrate the performance of this exact simulation algorithm.

Recommendations

• Exact sampling of diffusions with a discontinuity in the drift
• Exact simulation of one-dimensional stochastic differential equations involving the local time at zero of the unknown process
• Exact Simulation of Brownian Diffusions with Drift Admitting Jumps
• Retrospective exact simulation of diffusion sample paths with applications
• Exact simulation of diffusions

Cited in

(14)

• Convergence of the Euler-Maruyama method for multidimensional SDEs with discontinuous drift and degenerate diffusion coefficient
• Weak rate of convergence of the Euler-Maruyama scheme for stochastic differential equations with non-regular drift
• A transformed stochastic Euler scheme for multidimensional transmission PDE
• Extreme at-the-money skew in a local volatility model
• Approximation for non-smooth functionals of stochastic differential equations with irregular drift
• A numerical method for SDEs with discontinuous drift
• An adaptive Euler-Maruyama scheme for stochastic differential equations with discontinuous drift and its convergence analysis
• Exact simulation of one-dimensional stochastic differential equations involving the local time at zero of the unknown process
• Convergence in total variation of the Euler-Maruyama scheme applied to diffusion processes with measurable drift coefficient and additive noise
• Exact sampling of diffusions with a discontinuity in the drift
• Exact Simulation of Brownian Diffusions with Drift Admitting Jumps
• Convergence rate of the Euler-Maruyama scheme applied to diffusion processes with \(L^q - L^{\rho}\) drift coefficient and additive noise
• A general framework to simulate diffusions with discontinuous coefficients and local times
• Weak Approximation for a Black-Scholes Type Regime Switching Model

This page was built for publication: Exact simulation for solutions of one-dimensional stochastic differential equations with discontinuous drift

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5174375)