A New Discretization Scheme for One Dimensional Stochastic Differential Equations Using Time Change Method
Year: 2020
Type: preprint
Abstract: We propose a new numerical method for one dimensional stochastic differential equations (SDEs). The main idea of this method is based on a representation of a weak solution of a SDE with a time changed Brownian motion, dated back to Doeblin (1940). In cases where the diffusion coefficient is bounded and $β$-Hölder continuous with $0 < β\leq 1$, we provide the rate of strong convergence. An advantage of our approach is that we approximate the weak solution, which enables us to treat a SDE with no strong solution. Our scheme is the first to achieve the strong convergence for the case $0 < β< 1/2$.
Source: arXiv (Cornell University)
Authors: Fukasawa, Masaaki, Ikeda, Mitsumasa
Institution: The University of Osaka
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3032997371