A Wiener-Hopf Monte Carlo simulation technique for Lévy processes

DOI10.1214/10-AAP746MaRDI QIDQ657695zbMATH OpenFDO

Authors Alexey Kuznetsov, A. E. Kyprianou, J. C. Pardo, Kees van Schaik

Publication date 10 January 2012

Published in The Annals of Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0912.4743

zbMATH Keywords

numerical resultsinsurance risk theoryPoisson processexotic option pricingfinancial mathematicsrunning maximumWiener-Hopf factorizationWiener-Hopf Monte Carlo methodLévy processeshypergeomatric Lévy processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Monte Carlo methods (65C05) Numerical methods (including Monte Carlo methods) (91G60) Microeconomic theory (price theory and economic markets) (91B24)

Abstract: We develop a completely new and straightforward method for simulating the joint law of the position and running maximum at a fixed time of a general L'{e}vy process with a view to application in insurance and financial mathematics. Although different, our method takes lessons from Carr's so-called "Canadization" technique as well as Doney's method of stochastic bounds for L'{e}vy processes; see Carr [Rev. Fin. Studies 11 (1998) 597--626] and Doney [Ann. Probab. 32 (2004) 1545-1552]. We rely fundamentally on the Wiener-Hopf decomposition for L'{e}vy processes as well as taking advantage of recent developments in factorization techniques of the latter theory due to Vigon [Simplifiez vos L'{e}vy en titillant la factorization de Wiener-Hopf (2002) Laboratoire de Math'{e}matiques de L'INSA de Rouen] and Kuznetsov [Ann. Appl. Probab. 20 (2010) 1801--1830]. We illustrate our Wiener--Hopf Monte Carlo method on a number of different processes, including a new family of L'{e}vy processes called hypergeometric L'{e}vy processes. Moreover, we illustrate the robustness of working with a Wiener--Hopf decomposition with two extensions. The first extension shows that if one can successfully simulate for a given L'{e}vy processes then one can successfully simulate for any independent sum of the latter process and a compound Poisson process. The second extension illustrates how one may produce a straightforward approximation for simulating the two-sided exit problem.

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Cited in

(47)

• Simulation of the drawdown and its duration in Lévy models via stick-breaking Gaussian approximation
• \(L^p\) optimal prediction of the last zero of a spectrally negative Lévy process
• On exact sampling of nonnegative infinitely divisible random variables
• An Euler-Poisson scheme for Lévy driven stochastic differential equations
• Weak reflection principle for Lévy processes
• Deep factorisation of the stable process. II: Potentials and applications
• New methods of simulating Lévy processes
• An insurance risk model with Parisian implementation delays
• More on hypergeometric Lévy processes
• A variation of the Canadisation algorithm for the pricing of American options driven by Lévy processes
• Small-time asymptotics of stopped Lévy bridges and simulation schemes with controlled bias
• Closed-form option pricing for exponential Lévy models: a residue approach
• Monte Carlo method for pricing lookback type options in Lévy models
• Meromorphic Lévy processes and their fluctuation identities
• Wiener-Hopf factorization and distribution of extrema for a family of Lévy processes
• Asian options and meromorphic Lévy processes
• Asymptotic distributions of the overshoot and undershoots for the Lévy insurance risk process in the Cramér and convolution equivalent cases
• Randomisation and recursion methods for mixed-exponential Lévy models, with financial applications
• Geometrically convergent simulation of the extrema of Lévy processes
• Asymptotics of the maximum of Brownian motion under Erlangian sampling
• Multilevel Monte Carlo simulation for Lévy processes based on the Wiener-Hopf factorisation
• Exit identities for Lévy processes observed at Poisson arrival times
• The extended hypergeometric class of Lévy processes
• On the Wiener-Hopf factorization for Lévy processes with bounded positive jumps
• Spitzer identity, Wiener-Hopf factorization and pricing of discretely monitored exotic options
• Method of paired contours and pricing barrier options and CDSs of long maturities
• Applications of artificial neural networks to simulating Lévy processes
• Applying the Wiener-Hopf Monte Carlo simulation technique for Lévy processes to path functionals
• On the supremum of the spectrally negative stable process with drift
• The \(\beta\)-Meixner model
• Universal Monte Carlo method for Lévy processes and their extrema
• Fluctuations of stable processes and exponential functionals of hypergeometric Lévy processes
• Double hypergeometric Lévy processes and self-similarity
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• Approximate Wiener-Hopf factorization and Monte Carlo methods for Lévy processes
• The \(\beta \)-variance gamma model
• A simple Wiener-Hopf factorization approach for pricing double-barrier options
• A fast Monte Carlo scheme for additive processes and option pricing
• On the density of exponential functionals of Lévy processes
• A factorization of a Lévy process over a phase-type horizon
• A Wiener-Hopf based approach to numerical computations in fluctuation theory for Lévy processes
• Pricing bounds and bang-bang analysis of the Polaris variable annuities
• Multilevel Monte Carlo for exponential Lévy models
• Numerical techniques in Lévy fluctuation theory
• On the monitoring error of the supremum of a normal jump diffusion process
• An analytic recursive method for optimal multiple stopping: Canadization and phase-type fitting
• On exact sampling of the first passage event of a Lévy process with infinite Lévy measure and bounded variation

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