1. Pathwise convergence rates for numerical solutions of Markovian switching stochastic differential equations
- Author
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Nguyen, Son Luu and Yin, G.
- Subjects
- *
STOCHASTIC convergence , *APPROXIMATION algorithms , *NUMERICAL analysis , *MARKOV processes , *SWITCHING theory , *NUMERICAL solutions to stochastic differential equations , *DISCRETE-time systems - Abstract
Abstract: This work develops numerical approximation algorithms for solutions of stochastic differential equations with Markovian switching. The existing numerical algorithms all use a discrete-time Markov chain for the approximation of the continuous-time Markov chain. In contrast, we generate the continuous-time Markov chain directly, and then use its skeleton process in the approximation algorithm. Focusing on weak approximation, we take a re-embedding approach, and define the approximation and the solution to the switching stochastic differential equation on the same space. In our approximation, we use a sequence of independent and identically distributed (i.i.d.) random variables in lieu of the common practice of using Brownian increments. By virtue of the strong invariance principle, we ascertain rates of convergence in the pathwise sense for the weak approximation scheme. [Copyright &y& Elsevier]
- Published
- 2012
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