A General Framework to Simulate Diffusions with Discontinuous Coefficients and Local Times

Kailin Ding, Zhenyu Cui

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

In this article, we propose an efficient general simulation method for diffusions that are solutions to stochastic differential equations with discontinuous coefficients and local time terms. The proposed method is based on sampling from the corresponding continuous-time Markov chain approximation. In contrast to existing time discretization schemes, the Markov chain approximation method corresponds to a spatial discretization scheme and is demonstrated to be particularly suited for simulating diffusion processes with discontinuities in their state space. We establish the theoretical convergence order and also demonstrate the accuracy and robustness of the method in numerical examples by comparing it to the known benchmarks in terms of root mean squared error, runtime, and the parameter sensitivity.

Original languageEnglish
Article number22
JournalACM Transactions on Modeling and Computer Simulation
Volume32
Issue number4
DOIs
StatePublished - 5 Nov 2022

Keywords

  • CTMC approximation
  • Diffusion
  • discontinuous coefficient
  • local time

Fingerprint

Dive into the research topics of 'A General Framework to Simulate Diffusions with Discontinuous Coefficients and Local Times'. Together they form a unique fingerprint.

Cite this