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Exact Simulation of the First-Passage Time of Diffusions

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Abstract

Since diffusion processes arise in so many different fields, efficient technics for the simulation of sample paths, like discretization schemes, represent crucial tools in applied probability. Such methods permit to obtain approximations of the first-passage times as a by-product. For efficiency reasons, it is particularly challenging to simulate directly this hitting time by avoiding to construct the whole paths. In the Brownian case, the distribution of the first-passage time is explicitly known and can be easily used for simulation purposes. The authors introduce a new rejection sampling algorithm which permits to perform an exact simulation of the first-passage time for general one-dimensional diffusion processes. The efficiency of the method, which is essentially based on Girsanov’s transformation, is described through theoretical results and numerical examples.

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Authors and Affiliations

  1. Institut de Mathématiques de Bourgogne (IMB) - UMR 5584, CNRS, Université de Bourgogne Franche-Comté, 21000, Dijon, France

    S. Herrmann

  2. Department of Mathematics ‘G. Peano’, University of Torino, Via Carlo Alberto 10, 10123, Turin, Italy

    C. Zucca

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  1. S. Herrmann
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  2. C. Zucca
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Herrmann, S., Zucca, C. Exact Simulation of the First-Passage Time of Diffusions. J Sci Comput 79, 1477–1504 (2019). https://doi.org/10.1007/s10915-018-00900-3

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