On weak approximations of CIR equation with high volatility

Vigirdas Mackevičius

Mathematics and Computers in Simulation (MATCOM), 2010, vol. 80, issue 5, 959-970

Abstract: 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.

Keywords: CIR equation; Simulation; Weak approximation; Split-step scheme (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:80:y:2010:i:5:p:959-970

DOI: 10.1016/j.matcom.2009.11.001

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