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Uniform approximation of the Cox–Ingersoll–Ross process via exact simulation at random times

Published online by Cambridge University Press:  11 January 2017

Grigori N. Milstein
Affiliation:
Ural Federal University
John Schoenmakers
Affiliation:
Weierstrass Institute for Applied Analysis and Stochastics
Corresponding
E-mail address:

Abstract

In this paper we uniformly approximate the trajectories of the Cox–Ingersoll–Ross (CIR) process. At a sequence of random times the approximate trajectories will be even exact. In between, the approximation will be uniformly close to the exact trajectory. From a conceptual point of view, the proposed method gives a better quality of approximation in a path-wise sense than standard, or even exact, simulation of the CIR dynamics at some deterministic time grid.

Type
Research Article
Copyright
Copyright © Applied Probability Trust 2017 

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