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Proceedings Paper

Rate of convergence of approximations of some convex functionals of stochastic differential equations
Author(s): Henri Schurz
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Paper Abstract

The rate of convergence of numerical methods for integration of some convex functionals of ordinary stochastic differential equations (SDEs) is discussed. In particular, we answer how rates of p-th mean convergence carry over to rates of weak convergence for non-smooth and convex functionals of SDEs. Qualitative behavior of some numerical approximations such as nonnegativity of balanced implicit Milstein methods (BMMs) is investigated as well. Nonstandard integration techniques such as partial- and linear-implicit ones seem to be the most promissing. As a main result we obtain some justification for the choice of approximation schemes of discounted price functionals and their ingredients of random interest rates and volatility processes involved in dynamic asset pricing.

Paper Details

Date Published: 23 May 2005
PDF: 17 pages
Proc. SPIE 5848, Noise and Fluctuations in Econophysics and Finance, (23 May 2005); doi: 10.1117/12.619474
Show Author Affiliations
Henri Schurz, Southern Illinois Univ./Carbondale (United States)
Texas Tech Univ. (United States)

Published in SPIE Proceedings Vol. 5848:
Noise and Fluctuations in Econophysics and Finance
Derek Abbott; Jean-Philippe Bouchaud; Xavier Gabaix; Joseph L. McCauley, Editor(s)

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