Copyright © 2007 IMACS Published by Elsevier Ltd.
Simulation of Brownian motion at first-passage times
Received 26 June 2006;
accepted 24 January 2007.
Available online 2 February 2007.
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Abstract
We show how to simulate Brownian motion not on a regular time grid, but on a regular spatial grid. That is, when it first hits points in for some δ>0. Central to our method is an algorithm for the exact simulation of τ, the first time Brownian motion hits ±1. This work is motivated by boundary hitting problems for time-changed Brownian motion, such as appear in mathematical finance when pricing barrier-options.
Keywords: Brownian motion; Simulation; First-passage time; Boundary crossing; Barrier-option
Article Outline
- 1. Introduction
- 2. The first-passage time τ
- 3. Simulation algorithm
- 3.1. Efficiency
- Appendix A. Matlab code
- References






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