Simulation of Brownian motion at first-passage times

Zaeem A. Burq and Owen D. Jones

Mathematics and Computers in Simulation (MATCOM), 2008, vol. 77, issue 1, 64-71

Abstract: We show how to simulate Brownian motion not on a regular time grid, but on a regular spatial grid. That is, when it first hits points in δZ for some δ>0. Central to our method is an algorithm for the exact simulation of τ, the first time Brownian motion hits ±1. This work is motivated by boundary hitting problems for time-changed Brownian motion, such as appear in mathematical finance when pricing barrier-options.

Keywords: Brownian motion; Simulation; First-passage time; Boundary crossing; Barrier-option (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:77:y:2008:i:1:p:64-71

DOI: 10.1016/j.matcom.2007.01.038

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