2018-08-01
Controlling the time discretization bias for the supremum of Brownian Motion
Publication
Publication
ACM Transactions on Modeling and Computer Simulation , Volume 28 - Issue 3 p. 24
We consider the bias arising from time discretization when estimating the threshold crossing probability w(b) := P(supt ϵ[0,1] Bt > b), with (Bt )t ϵ[0,1] a standard BrownianMotion.We prove that if the discretization is equidistant, then to reach a given target value of the relative bias, the number of grid points has to grow quadratically in b, as b grows. When considering non-equidistant discretizations (with threshold-dependent grid points), we can substantially improve on this: we show that for such grids the required number of grid points is independent of b, and in addition we point out how they can be used to construct a strongly efficient algorithm for the estimation of w(b). Finally, we show how to apply the resulting algorithm for a broad class of stochastic processes; it is empirically shown that the threshold-dependent grid significantly outperforms its equidistant counterpart.
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| , , , , , | |
| doi.org/10.1145/3177775 | |
| ACM Transactions on Modeling and Computer Simulation | |
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| Organisation | Centrum Wiskunde & Informatica, Amsterdam (CWI), The Netherlands |
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Bisewski, K., Crommelin, D., & Mandjes, M. (2018). Controlling the time discretization bias for the supremum of Brownian Motion. ACM Transactions on Modeling and Computer Simulation, 28(3). doi:10.1145/3177775 |
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