Joint characteristic function and simultaneous simulation of iterated Itô integrals for multiple independent Brownian motions

Research output: Contribution to journalArticle

Abstract

We consider all two times iterated Ito integrals obtained by pairing m independent standard Brownian motions. First we calculate the conditional joint characteristic function of these integrals, given the Brownian increments over the integration interval, and show that it has a form entirely similar to what is obtained in the univariate case. Then we propose an algorithm for the simultaneous simulation of the m^2 integrals conditioned on the Brownian increments that achieves a mean square error
of order 1/n^2, where n is the number of terms in a truncated sum. The algorithm is based on approximation of the tail-sum distribution, which is a multivariate normal variance mixture, by a multivariate normal distribution.

Details

Authors
Organisations
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Probability Theory and Statistics

Keywords

  • numerical approximation, iterated Ito integral, multi-dimensional stochastic differential equation, variance mixture
Original languageEnglish
Pages (from-to)470-487
JournalAnnals of Applied Probability
Volume11
Issue number2
Publication statusPublished - 2001
Publication categoryResearch
Peer-reviewedYes