Convergence of Monte Carlo Simulations involving the Mean-Reverting Square Root Process

@article{Higham2005ConvergenceOM,
  title={Convergence of Monte Carlo Simulations involving the Mean-Reverting Square Root Process},
  author={Desmond J. Higham and Xuerong Mao},
  journal={Journal of Computational Finance},
  year={2005},
  volume={8},
  pages={35-61}
}
  • D. Higham, X. Mao
  • Published 25 April 2005
  • Mathematics
  • Journal of Computational Finance
The mean-reverting square root process is a stochastic differential equation (SDE) that has found considerable use as a model for volatility, interest rate, and other financial quantities. The equation has no general, explicit solution, although its transition density can be characterized. For valuing path-dependent options under this model, it is typically quicker and simpler to simulate the SDE directly than to compute with the exact transition density. Because the diffusion coefficient does… 

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