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© 2016 ISI/BS.This paper introduces a framework for simulating finite dimensional representations of (jump) diffusion sample paths over finite intervals, without discretisation error (exactly), in such a way that the sample path can be restored at any finite collection of time points. Within this framework we extend existing exact algorithms and introduce novel adaptive approaches. We consider an application of the methodology developed within this paper which allows the simulation of upper and lower bounding processes which almost surely constrain (jump) diffusion sample paths to any specified tolerance. We demonstrate the efficacy of our approach by showing that with finite computation it is possible to determine whether or not sample paths cross various irregular barriers, simulate to any specified tolerance the first hitting time of the irregular barrier and simulate killed diffusion sample paths.
Author(s): Pollock M, Johansen AM, Roberts GO
Publication type: Article
Publication status: Published
Journal: Bernoulli
Year: 2016
Volume: 22
Issue: 2
Pages: 794-856
Print publication date: 01/05/2016
Online publication date: 09/11/2015
Acceptance date: 30/04/2014
ISSN (print): 1350-7265
Publisher: International Statistical Institute
URL: http://doi.org/10.3150/14-BEJ676
DOI: 10.3150/14-BEJ676
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