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arXiv · 0706.4042

Stopped diffusion processes: boundary corrections and overshoot

Emmanuel Gobet·Stéphane Menozzi
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Abstract

For a stopped diffusion process in a multidimensional time-dependent domain $\D$, we propose and analyse a new procedure consisting in simulating the process with an Euler scheme with step size $Δ$ and stopping it at discrete times $(iΔ)_{i\in\N^*}$ in a modified domain, whose boundary has been appropriately shifted. The shift is locally in the direction of the inward normal $n(t,x)$ at any point $(t,x)$ on the parabolic boundary of $\D$, and its amplitude is equal to $0.5826 (...) |n^*σ|(t,x)\sqrt Δ$ where $σ$ stands for the diffusion coefficient of the process. The procedure is thus extremely easy to use. In addition, we prove that the rate of convergence w.r.t. $Δ$ for the associated weak error is higher than without shifting, generalizin g previous results by \cite{broa:glas:kou:97} obtained for the one dimensional Brownian motion. For this, we establish in full generality the asymptotics of the triplet exit time/exit position/overshoot for the discretely stopped Euler scheme. Here, the overshoot means the distance to the boundary of the process when it exits the domain. Numerical experiments support these results.

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Emmanuel Gobet, Stéphane Menozzi. 2009-06-18. Stopped diffusion processes: boundary corrections and overshoot. https://arxiv.org/abs/0706.4042

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