On the Strong Approximation of Pure Jump Processes

Nicola Bruti-Liberati and Eckhard Platen ()

No 164, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: This paper constructs strong discrete time approximations for pure jump processes that can be described by stochastic differential equations. Strong approximations based on jump-adapted time discretizations, which produce no discretization bias, are analyzed. The computational complexity of these approximations is proportional to the jump intensity. Furthermore, by exploiting a stochastic expansion for pure jump processes, higher order discrete time approximations, whose computational complexity is not dependent on the jump intensity, are proposed. The strong order of convergence of the resulting schemes is analyzed.

Keywords: pure jump processes; stochastic Taylor expansion; discrete time approximation; simulation; strong convergence (search for similar items in EconPapers)
JEL-codes: G10 G13 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2005-07-01
New Economics Papers: this item is included in nep-fin
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Persistent link: https://EconPapers.repec.org/RePEc:uts:rpaper:164

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