Simulation of forward-reverse stochastic representations for conditional diffusions
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Abstract: In this paper we derive stochastic representations for the finite dimensional distributions of a multidimensional diffusion on a fixed time interval, conditioned on the terminal state. The conditioning can be with respect to a fixed point or more generally with respect to some subset. The representations rely on a reverse process connected with the given (forward) diffusion as introduced in Milstein, Schoenmakers and Spokoiny [Bernoulli 10 (2004) 281-312] in the context of a forward-reverse transition density estimator. The corresponding Monte Carlo estimators have essentially root- accuracy, and hence they do not suffer from the curse of dimensionality. We provide a detailed convergence analysis and give a numerical example involving the realized variance in a stochastic volatility asset model conditioned on a fixed terminal value of the asset.
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Cited in
(13)- Forward or backward simulation? A comparative study
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- Continuous-discrete smoothing of diffusions
- Simulation of elliptic and hypo-elliptic conditional diffusions
- Sequential Monte Carlo with Highly Informative Observations
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- Transition density estimation for stochastic differential equations via forward-reverse represen\-ta\-tions
- Simulation of conditioned diffusion and application to parameter estimation
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- Multiscale modeling of wear degradation in cylinder liners
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- An MM algorithm to estimate parameters in continuous-time Markov chains
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