Summary
In this work we study standard Euler updates for simulating stopped diffusions. We make extensive use of the fact that in many applications approximations have to be good only in the weak sense. This means that for good convergence properties only an accurate approximation of the distribution is essential whereas path wise convergence is not needed. Consequently, we sample needed random variables from their analytical distributions (or suitable approximations). As an immediate application we discuss the computation of first exit times of diffusions from a domain. We focus on one dimensional situations but illustrate extensions and applications in higher dimensional settings.
We include a series of numerical experiments confirming the conjectured accuracy of our methods (they are of weak order one).
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Paolo Baldi. Exact asymptotics for the probability of exit from a domain and applications to simulation. Ann. Probab., 23(4):1644–1670, 1995.
F.M. Buchmann and W.P. Petersen. Solving Dirichlet problems numerically using the Feynman-Kac representation. BIT, 43(3):519–540, 2003.
Andrei N. Borodin and Paavo Salminen. Handbook of Brownian motion—facts and formulae. Probability and its Applications. Birkhäuser Verlag, Basel, second edition, 2002.
F.M. Buchmann. Solving high dimensional Dirichlet problems numerically using the Feynman-Kac representation. PhD thesis, Swiss Federal Institute of Technology Zurich, 2004.
F. M. Buchmann. Simulation of stopped diffusions. J. Comp. Phys., 202(2):446–462, 2005.
J. L. Folks and R. S. Chhikara. The inverse Gaussian distribution and its statistical application—a review. J. Roy. Statist. Soc. Ser. B, 40(3):263–289, 1978. With discussion.
Mark Freidlin. Functional integration and partial differential equations, volume 109 of Annals of Mathematics Studies. Princeton University Press, Princeton, NJ, 1985.
Emmanuel Gobet. Weak approximation of killed diffusion using Euler schemes. Stochastic Process. Appl., 87(2):167–197, 2000.
Kalvis M. Jansons and G. D. Lythe. Efficient numerical solution of stochastic differential equations using exponential timestepping. J. Statist. Phys., 100(5–6):1097–1109, 2000.
Kalvis M. Jansons and G. D. Lythe. Exponential timestepping with boundary test for stochastic differential equations. SIAM J. Sci. Comput., 24(5):1809–1822 (electronic), 2003.
Peter E. Kloeden and Eckhard Platen. Numerical solution of stochastic differential equations, volume 23 of Applications of Mathematics (New York). Springer-Verlag, Berlin, 1992.
Maurice G. Kendall and Alan Stuart. The advanced theory of statistics. Vol. 2. Hafner Publishing Co., New York, third edition, 1973. Inference and relationship.
H. R. Lerche and D. Siegmund. Approximate exit probabilities for a Brownian bridge on a short time interval, and applications. Adv. in Appl. Probab., 21(1):1–19, 1989.
G. N. Milstein. Numerical integration of stochastic differential equations, volume 313 of Mathematics and its Applications. Kluwer Academic Publishers Group, Dordrecht, 1995. Translated and revised from the 1988 Russian original.
G. N. Milstein. Weak approximation of a diffusion process in a bounded domain. Stochastics Stochastics Rep., 62(1–2):147–200, 1997.
John R. Michael, William R. Schucany, and Roy W. Haas. Generating random variates using transformations with multiple roots. Am. Stat., 30:88–90, 1976.
L. C. G. Rogers and David Williams. Diffusions, Markov processes, and martingales. Vol. 2. Cambridge Mathematical Library. Cambridge University Press, Cambridge, 2000. Itô calculus, Reprint of the second (1994) edition.
Alain-Sol Sznitman. A limiting result for the structure of collisions between many independent diffusions. Probab. Theory Related Fields, 81(3):353–381, 1989.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2006 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Buchmann, F., Petersen, W. (2006). Weak Approximation of Stopped Dffusions. In: Niederreiter, H., Talay, D. (eds) Monte Carlo and Quasi-Monte Carlo Methods 2004. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-31186-6_3
Download citation
DOI: https://doi.org/10.1007/3-540-31186-6_3
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-25541-3
Online ISBN: 978-3-540-31186-7
eBook Packages: Mathematics and StatisticsMathematics and Statistics (R0)