Weak Error Rates of Numerical Schemes for Rough Volatility

DOI10.1137/22M1485760zbMATH Open1517.91280arXiv2203.09298OpenAlexW4320167437MaRDI QIDQ6159079FDOQ6159079

Authors: Paul Gassiat 

Publication date: 1 June 2023

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Abstract: Simulation of rough volatility models involves discretization of stochastic integrals where the integrand is a function of a (correlated) fractional Brownian motion of Hurst index $Hin(0,1/2)$. We obtain results on the rate of convergence for the weak error of such approximations, in the special cases when either the integrand is the fBm itself, or the test function is cubic. Our result states that the convergence is of order $(3H+frac12)wedge1$ for exact left-point discretization, and of order $H+frac12$ for the hybrid scheme with well-chosen weights.

Full work available at URL: https://arxiv.org/abs/2203.09298

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zbMATH Keywords

fractional Brownian motionnumerical schemesrough volatilityweak convergence rates

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) Fractional processes, including fractional Brownian motion (60G22) Probabilistic models, generic numerical methods in probability and statistics (65C20)

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Cited In (7)

• A strong uniform approximation of fractional Brownian motion by means of transport processes
• WEAK ERROR RATES FOR OPTION PRICING UNDER LINEAR ROUGH VOLATILITY
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• Cubature Method for Stochastic Volterra Integral Equations
• VALUE-AT-RISK COMPUTATIONS IN STOCHASTIC VOLATILITY MODELS USING SECOND-ORDER WEAK APPROXIMATION SCHEMES
• Statistical inference for rough volatility: minimax theory
• On the Discrete-Time Simulation of the Rough Heston Model

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