Higher-order numerical scheme for solving stochastic differential equations
Alhojilan, Yazid Yousef M
MetadataShow full item record
We present a new pathwise approximation method for stochastic differential equations driven by Brownian motion which does not require simulation of the stochastic integrals. The method is developed to give Wasserstein bounds O(h3/2) and O(h2) which are better than the Euler and Milstein strong error rates O(√h) and O(h) respectively, where h is the step-size. It assumes nondegeneracy of the diffusion matrix. We have used the Taylor expansion but generate an approximation to the expansion as a whole rather than generating individual terms. We replace the iterated stochastic integrals in the method by random variables with the same moments conditional on the linear term. We use a version of perturbation method and a technique from optimal transport theory to find a coupling which gives a good approximation in Lp sense. This new method is a Runge-Kutta method or so-called derivative-free method. We have implemented this new method in MATLAB. The performance of the method has been studied for degenerate matrices. We have given the details of proof for order h3/2 and the outline of the proof for order h2.