Multilevel Monte Carlo method for jump-diffusion SDEs
AbstractWe investigate the extension of the multilevel Monte Carlo path simulation method to jump-diffusion SDEs. We consider models with finite rate activity, using a jump-adapted discretisation in which the jump times are computed and added to the standard uniform dis- cretisation times. The key component in multilevel analysis is the calculation of an expected payoff difference between a coarse path simulation and a fine path simulation with twice as many timesteps. If the Poisson jump rate is constant, the jump times are the same on both paths and the multilevel extension is relatively straightforward, but the implementation is more complex in the case of state-dependent jump rates for which the jump times naturally differ.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1106.4730.
Date of creation: Jun 2011
Date of revision:
Contact details of provider:
Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nicola Bruti-Liberati & Eckhard Platen, 2005. "On the Strong Approximation of Jump-Diffusion Processes," Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney 157, Quantitative Finance Research Centre, University of Technology, Sydney.
- Nicolas Merener & Paul Glasserman, 2003. "Numerical solution of jump-diffusion LIBOR market models," Finance and Stochastics, Springer, Springer, vol. 7(1), pages 1-27.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If references are entirely missing, you can add them using this form.