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Error bounds for small jumps of L\'evy processes

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  • El Hadj Aly Dia

    (LAMA)

Abstract

The pricing of options in exponential Levy models amounts to the computation of expectations of functionals of Levy processes. In many situations, Monte-Carlo methods are used. However, the simulation of a Levy process with infinite Levy measure generally requires either to truncate small jumps or to replace them by a Brownian motion with the same variance. We will derive bounds for the errors generated by these two types of approximation.

Suggested Citation

  • El Hadj Aly Dia, 2010. "Error bounds for small jumps of L\'evy processes," Papers 1009.4886, arXiv.org, revised Oct 2012.
    • Handle: RePEc:arx:papers:1009.4886
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