On weak approximations of CIR equation with high volatility

We propose two new positive weak second-order approximations for the CIR equation dXt=(a−bXt)dt+σXtdBt based on splitting, at each step, the equation into the deterministic part dXt=(a−bXt)dt, which is solved exactly, and the stochastic part dXt=σXtdBt, which is approximated in distribution. The schemes are illustrated by encouraging simulation results.

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Year of publication:	2010
Authors:	Mackevičius, Vigirdas
Published in:	Mathematics and Computers in Simulation (MATCOM). - Elsevier, ISSN 0378-4754. - Vol. 80.2010, 5, p. 959-970
Publisher:	Elsevier
Subject:	CIR equation \| Simulation \| Weak approximation \| Split-step scheme

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011050623