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}
}
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
Highly Cited
This paper has 36 citations. REVIEW CITATIONS

References

Publications referenced by this paper.
Showing 1-10 of 49 references

Maximum likelihood estimation of discretely sampled diffusions: a closed-from approximation approach

  • Y. Aı̈t-Sahalia
  • Econometrica
  • 2002
Highly Influential
6 Excerpts

Numerical solution of stochastic differential equations

  • P. E. Kloeden, E. Platen
  • Springer-Verlag, Berlin
  • 1992
Highly Influential
4 Excerpts

Browinian motion and stochastic calculus

  • I. Karatzas, S. E. Shreve
  • 2nd Edition. Springer, New York
  • 1991
Highly Influential
6 Excerpts

A theory of the term structure of interest rates

  • J. C. Cox, J. E. Ingersoll, S. A. Ross
  • Econometrica 53
  • 1985
Highly Influential
8 Excerpts

Monte Carlo methods in financial engineering

  • P. Glasserman
  • Springer-Verlag, New York
  • 2004
Highly Influential
7 Excerpts

Boundary crossing probability for Brownian motion

  • K. Pötzelberger, L. Wang
  • Journal of Applied Probability 38
  • 2001
Highly Influential
5 Excerpts

Estimation of the diffusion coefficient from crossing

  • D. Florens
  • Statistical Inference for Stochastic Processes 1
  • 1999
Highly Influential
4 Excerpts

Similar Papers

Loading similar papers…