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Mathematics and Computers in Simulation
Volume 77, Issue 1, 15 February 2008, Pages 64-71
 
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doi:10.1016/j.matcom.2007.01.038    How to Cite or Link Using DOI (Opens New Window)
Copyright © 2007 IMACS Published by Elsevier Ltd.

Simulation of Brownian motion at first-passage times

Zaeem A. Burqa and Owen D. JonesCorresponding Author Contact Information, a, E-mail The Corresponding Author

aDepartment of Mathematics and Statistics, University of Melbourne, Melbourne, Victoria, Australia

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 View the MathML source 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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