The order barrier for the L¹-approximation of the log-Heston SDE at a single point

arXiv2212.07252MaRDI QIDQ6420530FDOQ6420530

Authors: A. Neuenkirch 

Publication date: 14 December 2022

Abstract: We study the $L^1$-approximation of the log-Heston SDE at the terminal time point by arbitrary methods that use an equidistant discretization of the driving Brownian motion. We show that such methods can achieve at most order $minu,frac12$, where $u$ is the Feller index of the underlying CIR process. As a consequence Euler-type schemes are optimal for $ugeq1$, since they have convergence order $frac12-epsilon$ for $epsilon>0$ arbitrarily small in this regime.

Mathematics Subject Classification ID

Numerical methods (including Monte Carlo methods) (91G60) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical solutions to stochastic differential and integral equations (65C30)

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