EconPapers    
Economics at your fingertips  
 

On Weak Predictor-Corrector Schemes for Jump-Diffusion Processes in Finance

Nicola Bruti-Liberati and Eckhard Platen ()

No 179, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: Event-driven uncertainties such as corporate defaults, operational failures or central bank announcements are important elements in the modelling of financial quantities. Therefore, stochastic differential equations (SDEs) of jump-diffusion type are often used in finance. We consider in this paper weak discrete time approximations of jump-diffusion SDEs which are appropriate for problems such as derivative pricing and the evaluation of risk measures. We present regular and jump-adapted predictor-corrector schemes with first and second order of weak convergence. The regular schemes are constructed on regular time discretizations that do not include jump times, while the jump-adapted schemes are based on time discretizations that include all jump times. A numerical analysis of the accuracy of these schemes when applied to the jump-diffusion Merton model is provided.

Keywords: weak approximations; Monte Carlo simulations; predictor-corrector schemes; jump diffusions (search for similar items in EconPapers)
JEL-codes: C63 G10 G13 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2006-07-01
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Published as: Bruti-Liberati, N. and Platen, E, 2012, "On Weak Predictor-Corrector Schemes for Jump-Diffusion Processes in Finance", In: Topics in Numerical Methods for Finance, Volume 19 of the series Springer Proceedings in Mathematics and Statistics, 1-13.

Downloads: (external link)
https://www.uts.edu.au/sites/default/files/qfr-archive-02/QFR-rp179.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:uts:rpaper:179

Access Statistics for this paper

More papers in Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford ().

 
Page updated 2022-01-19
Handle: RePEc:uts:rpaper:179