Weak and Strong Taylor methods for numerical solutions of stochastic differential equations

Details Weak and Strong Taylor methods for numerical solutions of stochastic differential equations Weak and Strong Taylor methods for numerical solutions of stochastic differential equations

2007-04-05

arxiv.org/abs/0704.0745v1

Economy

Quantitative Finance

Computational Finance

18 pages

Scientific paper

We apply results of Malliavin-Thalmaier-Watanabe for strong and weak Taylor expansions of solutions of perturbed stochastic differential equations (SDEs). In particular, we work out weight expressions for the Taylor coefficients of the expansion. The results are applied to LIBOR market models in order to deal with the typical stochastic drift and with stochastic volatility. In contrast to other accurate methods like numerical schemes for the full SDE, we obtain easily tractable expressions for accurate pricing. In particular, we present an easily tractable alternative to ``freezing the drift'' in LIBOR market models, which has an accuracy similar to the full numerical scheme. Numerical examples underline the results.

Affiliated with

Also associated with

No associations

Rating

Weak and Strong Taylor methods for numerical solutions of stochastic differential equations does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Weak and Strong Taylor methods for numerical solutions of stochastic differential equations, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Weak and Strong Taylor methods for numerical solutions of stochastic differential equations will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-293969