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Asymptotic error distribution for the Euler scheme with locally Lipschitz coefficients

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  • Protter, Philip
  • Qiu, Lisha
  • Martin, Jaime San

Abstract

In traditional works on numerical schemes for solving stochastic differential equations (SDEs), the globally Lipschitz assumption is often assumed to ensure different types of convergence. In practice, this is often too strong a condition. Brownian motion driven SDEs used in applications sometimes have coefficients which are only Lipschitz on compact sets, but the paths of the SDE solutions can be arbitrarily large. In this paper, we prove convergence in probability and a weak convergence result under a less restrictive assumption, that is, locally Lipschitz and with no finite time explosion. We prove if a numerical scheme converges in probability uniformly on any compact time set (UCP) with a certain rate under a global Lipschitz condition, then the UCP with the same rate holds when a globally Lipschitz condition is replaced with a locally Lipschitz plus no finite explosion condition. For the Euler scheme, weak convergence of the error process is also established. The main contribution of this paper is the proof of n weak convergence of the normalized error process and the limit process is also provided. We further study the boundedness of the second moments of the weak limit process and its running supremum under both global Lipschitz and locally Lipschitz conditions.

Suggested Citation

  • Protter, Philip & Qiu, Lisha & Martin, Jaime San, 2020. "Asymptotic error distribution for the Euler scheme with locally Lipschitz coefficients," Stochastic Processes and their Applications, Elsevier, vol. 130(4), pages 2296-2311.
    • Handle: RePEc:eee:spapps:v:130:y:2020:i:4:p:2296-2311
    DOI: 10.1016/j.spa.2019.07.003
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    References listed on IDEAS

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    1. Bally, Vlad & Talay, Denis, 1995. "The Euler scheme for stochastic differential equations: error analysis with Malliavin calculus," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 38(1), pages 35-41.
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