Error bounds for small jumps of Lévy processes

Details Error bounds for small jumps of Lévy processes Error bounds for small jumps of Lévy processes

2010-09-23

arxiv.org/abs/1009.4886v3

Economy

Quantitative Finance

Computational Finance

27 pp

Scientific paper

The pricing of options in exponential Levy models amounts to the computation of expectations of functionals of Levy processes. In many situations, Monte-Carlo methods are used. However, the simulation of a Levy process with innite Levy measure generally requires either to truncate small jumps or to replace them by a Brownian motion with the same variance. We will derive bounds for the errors generated by these two types of approximation.

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