Error bounds for small jumps of L\'evy processes

El Hadj Aly Dia
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El Hadj Aly Dia: LAMA

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Abstract: The pricing of options in exponential Levy models amounts to the computation of expectations of functionals of Levy processes. In many situations, Monte-Carlo methods are used. However, the simulation of a Levy process with infinite Levy measure generally requires either to truncate small jumps or to replace them by a Brownian motion with the same variance. We will derive bounds for the errors generated by these two types of approximation.

Date: 2010-09, Revised 2012-10
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Published in Advances in Applied Probability (2013) 30

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