Approximation of Non-Lipschitz SDEs by Picard Iterations

Julien Baptiste, Julien Grepat and Emmanuel Lepinette

Applied Mathematical Finance, 2018, vol. 25, issue 2, 148-179

Abstract: In this article, we propose an approximation method based on Picard iterations deduced from the Doléans–Dade exponential formula. Our method allows to approximate trajectories of Markov processes in a large class, e.g., solutions to non-Lipchitz stochastic differential equation. An application to the pricing of Asian-style contingent claims in the constant elasticity of variance model is presented and compared to other methods of the literature.

Date: 2018
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DOI: 10.1080/1350486X.2018.1507749

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