This chapter is devoted to numerical approximation methods for switching diffusions whose switching component is x dependent. As closed-form solutions for switching diffusions are often difficult to obtain, numerical approximation is frequently a viable or possibly the only alternative. This chapter introduces numerical algorithms and establishes weak convergence of the associated continuous-time interpolation process using the martingale method. In addition, under mild conditions, it provides an explicit strong convergence rate for the numerical scheme.

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Numerical Approximation

  • Hai-Dang Nguyen,
  • George Yin,
  • Chao Zhu

摘要

This chapter is devoted to numerical approximation methods for switching diffusions whose switching component is x dependent. As closed-form solutions for switching diffusions are often difficult to obtain, numerical approximation is frequently a viable or possibly the only alternative. This chapter introduces numerical algorithms and establishes weak convergence of the associated continuous-time interpolation process using the martingale method. In addition, under mild conditions, it provides an explicit strong convergence rate for the numerical scheme.