Exact Sampling of Jump Diffusions

Kay Giesecke () and Dmitry Smelov ()
Additional contact information
Kay Giesecke: Department of Management Science and Engineering, Stanford University, Stanford, California 94305
Dmitry Smelov: Goldman Sachs & Co., New York, New York 10282

Operations Research, 2013, vol. 61, issue 4, 894-907

Abstract: This paper develops a method for the exact simulation of a skeleton, a hitting time, and other functionals of a one-dimensional jump diffusion with state-dependent drift, volatility, jump intensity, and jump size. The method requires the drift function to be C 1 , the volatility function to be C 2 , and the jump intensity function to be locally bounded. No further structure is imposed on these functions. The method leads to unbiased simulation estimators of security prices, transition densities, hitting probabilities, and other quantities. Numerical results illustrate its features.

Keywords: jump-diffusion process; stochastic differential equation; exact simulation; exact sampling; unbiased simulation estimator (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.2013.1191 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:61:y:2013:i:4:p:894-907

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().