Cubature Method for Stochastic Volterra Integral Equations

Qi Feng and Jianfeng Zhang

Papers from arXiv.org

Abstract: In this paper, we introduce the cubature formula for Stochastic Volterra Integral Equations. We first derive the stochastic Taylor expansion in this setting, by utilizing a functional It\^{o} formula, and provide its tail estimates. We then introduce the cubature measure for such equations, and construct it explicitly in some special cases, including a long memory stochastic volatility model. We shall provide the error estimate rigorously. Our numerical examples show that the cubature method is much more efficient than the Euler scheme, provided certain conditions are satisfied.

Date: 2021-10, Revised 2023-07
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Published in SIAM J. Financial Mathematics.2023

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2110.12853

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