First order strong approximation of Ait-Sahalia-type interest rate model with Poisson jumps

DOI10.1007/S11075-022-01494-6MaRDI QIDQ6133889OpenAlexFDO

Authors

Publication date 21 August 2023

Published in Numerical Algorithms (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2110.15482

zbMATH Keywords

Poisson jumpsstrong convergence rateAit-Sahalia-type interest rate modeltransformed jump-adapted backward Euler method

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical analysis (65-XX) Numerical solutions to stochastic differential and integral equations (65C30)

Abstract: For Ait-Sahalia-type interest rate model with Poisson jumps, we are interested in strong convergence of a novel time-stepping method, called transformed jump-adapted backward Euler method (TJABEM). Under certain hypothesis, the considered model takes values in positive domain $(0,infty)$. It is shown that the TJABEM can preserve the domain of the underlying problem. Furthermore, for the above model with non-globally Lipschitz drift and diffusion coefficients, the strong convergence rate of order one of the TJABEM is recovered with respect to a $L^p$-error criterion. Finally, numerical experiments are given to illustrate the theoretical results.

Cited in

(3)

• On the backward Euler method for a generalized Ait-Sahalia-type rate model with Poisson jumps
• Generalized Ait-Sahalia-type interest rate model with Poisson jumps and convergence of the numerical approximation
• Numerical simulation of a strongly nonlinear Ait-Sahalia-type interest rate model

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