The Euler scheme for stochastic differential equations with discontinuous drift coefficient: A numerical study of the convergence rate


Göttlich, Simone ; Lux, Kerstin ; Neuenkirch, Andreas


Additional URL: https://arxiv.org/abs/1705.04562
Document Type: Working paper
Year of publication: 2017
Place of publication: Ithaca, NY
Publishing house: Cornell University
Edition: Revised 2019
Publication language: English
Institution: School of Business Informatics and Mathematics > Wissenschaftliches Rechnen (Göttlich 2011-)
School of Business Informatics and Mathematics > Wirtschaftsmathematik II (Neuenkirch 2013-)
Subject: 510 Mathematics
Abstract: The Euler scheme is one of the standard schemes to obtain numerical approximations of stochastic differential equations (SDEs). Its convergence properties are well-known in the case of globally Lipschitz continuous coefficients. However, in many situations, relevant systems do not show a smooth behavior, which results in SDE models with discontinuous drift coefficient. In this work, we will analyze the long time properties of the Euler scheme applied to SDEs with a piecewise constant drift and a constant diffusion coefficient and carry out intensive numerical tests for its convergence properties. We will emphasize on numerical convergence rates and analyze how they depend on properties of the drift coefficient and the initial value. We will also give theoretical interpretations of some of the arising phenomena. For application purposes, we will study a rank-based stock market model describing the evolution of the capital distribution within the market and provide theoretical as well as numerical results on the long time ranking behavior.

Dieser Eintrag ist Teil der Universitätsbibliographie.




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Göttlich, Simone ORCID: 0000-0002-8512-4525 ; Lux, Kerstin ; Neuenkirch, Andreas (2017) The Euler scheme for stochastic differential equations with discontinuous drift coefficient: A numerical study of the convergence rate. Ithaca, NY [Working paper]


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