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Discretization error of Stochastic Integrals

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  • Masaaki Fukasawa
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    Abstract

    Asymptotic error distribution for approximation of a stochastic integral with respect to continuous semimartingale by Riemann sum with general stochastic partition is studied. Effective discretization schemes of which asymptotic conditional mean-squared error attains a lower bound are constructed. Two applications are given; efficient delta hedging strategies with transaction costs and effective discretization schemes for the Euler-Maruyama approximation are constructed.

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    File URL: http://arxiv.org/pdf/1004.2107
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1004.2107.

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    Date of creation: Apr 2010
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    Handle: RePEc:arx:papers:1004.2107

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    Web page: http://arxiv.org/

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