Cubature on Wiener space: pathwise convergence

Christian Bayer and Peter K. Friz

Papers from arXiv.org

Abstract: Cubature on Wiener space [Lyons, T.; Victoir, N.; Proc. R. Soc. Lond. A 8 January 2004 vol. 460 no. 2041 169-198] provides a powerful alternative to Monte Carlo simulation for the integration of certain functionals on Wiener space. More specifically, and in the language of mathematical finance, cubature allows for fast computation of European option prices in generic diffusion models. We give a random walk interpretation of cubature and similar (e.g. the Ninomiya--Victoir) weak approximation schemes. By using rough path analysis, we are able to establish weak convergence for general path-dependent option prices.

Date: 2013-04
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Published in Applied Mathematics & Optimization, April 2013, Volume 67, Issue 2, pp 261-278

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