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Exact Simulation Problems for Jump-Diffusions

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Abstract

Exact simulation of SDEs is a very important and challenging problem. In this paper we discuss exact simulation problems for jump-diffusion processes. Motivated by statistical applications, our main contribution is to propose an algorithm that performs exact simulation of a class of jump-diffusion bridges. We also present and discuss the existing methods for forward simulation and propose an extension of one of them to account for unbounded jump rate. Finally, the exact algorithms are compared to competing non-exact ones in some simulated examples.

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Authors and Affiliations

  1. Departamento de Estatística, Universidade Federal de Minas Gerais, Av. Antônio Carlos 6627, Belo Horizonte, MG, 31270-901, Brazil

    Flávio B. Gonçalves

  2. Department of Statistics, University of Warwick, Coventry, UK

    Gareth O. Roberts

Authors
  1. Flávio B. Gonçalves
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  2. Gareth O. Roberts
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Correspondence to Flávio B. Gonçalves.

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Gonçalves, F.B., Roberts, G.O. Exact Simulation Problems for Jump-Diffusions. Methodol Comput Appl Probab 16, 907–930 (2014). https://doi.org/10.1007/s11009-013-9330-2

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  • DOI: https://doi.org/10.1007/s11009-013-9330-2

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