Exact simulation for a class of tempered stable

Angelos Dassios, Yan Qu and Hongbiao Zhao

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In this paper, we develop a new scheme of exact simulation for a class of tempered stable (TS) and other related distributions with similar Laplace transforms. We discover some interesting integral representations for the underlying density functions that imply a unique simulation framework based on a backward recursive procedure. Therefore, the foundation of this simulation design is very different from existing schemes in the literature. It works pretty efficiently for some subclasses of TS distributions, where even the conventional acceptancerejection mechanism can be avoided. It can also generate some other distributions beyond the TS family. For applications, this scheme could be easily adopted to generate a variety of TSconstructed random variables and TS-driven stochastic processes for modelling observational series in practice. Numerical experiments and tests are performed to demonstrate the accuracy and effectiveness of our scheme

Keywords: Monte Carlo simulation; Exact simulation; Backward recursive scheme; Stable distribution; Tempered stable distribution; Exponentially tilted stable distribution; Lévy process; Lévy subordinator; Leptokurtosis (search for similar items in EconPapers)
JEL-codes: C1 (search for similar items in EconPapers)
Date: 2018-08-01
New Economics Papers: this item is included in nep-cmp and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in ACM Transactions on Modeling and Computer Simulation, 1, August, 2018, 28(3). ISSN: 1049-3301

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86981

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