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# Localization and Exact Simulation of Brownian Motion-Driven Stochastic Differential Equations

@article{Chen2013LocalizationAE, title={Localization and Exact Simulation of Brownian Motion-Driven Stochastic Differential Equations}, author={Nan Chen and Zhengyu Huang}, journal={Math. Oper. Res.}, year={2013}, volume={38}, pages={591-616} }

- Published 2013 in Math. Oper. Res.
DOI:10.1287/moor.2013.0585

Generating sample paths of stochastic differential equations (SDE) using the Monte Carlo method finds wide applications in financial engineering. Discretization is a popular approximate approach to generating those paths: it is easy to implement but prone to simulation bias. This article presents a new simulation scheme to exactly generate samples for SDEs. The key observation is that the law of a general SDE can be decomposed into a product of the law of standard Brownian motion and the law of… CONTINUE READING

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