An adaptive splitting method for the Cox-Ingersoll-Ross process

C\'onall Kelly and Gabriel J. Lord

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Abstract: We propose a new splitting method for strong numerical solution of the Cox-Ingersoll-Ross model. For this method, applied over both deterministic and adaptive random meshes, we prove a uniform moment bound and strong error results of order $1/4$ in $L_1$ and $L_2$ for the parameter regime $\kappa\theta>\sigma^2$. We then extend the new method to cover all parameter values by introducing a \emph{soft zero} region (where the deterministic flow determines the approximation) giving a hybrid type method to deal with the reflecting boundary. From numerical simulations we observe a rate of order $1$ when $\kappa\theta>\sigma^2$ rather than $1/4$. Asymptotically, for large noise, we observe that the rates of convergence decrease similarly to those of other schemes but that the proposed method making use of adaptive timestepping displays smaller error constants.

Date: 2021-12, Revised 2023-02
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Published in Applied Numerical Mathematics, Volume 186, 2023, Pages 252-273

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