Discretization error of Stochastic Integrals
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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| Length: | |
| Date of creation: | Apr 2010 |
| Handle: | RePEc:arx:papers:1004.2107 |
| Contact details of provider: | Web page: http://arxiv.org/
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References listed on IDEAS
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- Konakov Valentin & Mammen Enno, 2002. "Edgeworth type expansions for Euler schemes for stochastic differential equations," Monte Carlo Methods and Applications, De Gruyter, vol. 8(3), pages 271-286, December.
- BALLY Vlad & TALAY Denis, 1996. "The Law of the Euler Scheme for Stochastic Differential Equations: II. Convergence Rate of the Density," Monte Carlo Methods and Applications, De Gruyter, vol. 2(2), pages 93-128, December.
- Takaki Hayashi & Per A. Mykland, 2005. "Evaluating Hedging Errors: An Asymptotic Approach," Mathematical Finance, Wiley Blackwell, vol. 15(2), pages 309-343.
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