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Journal Articles Stochastic Processes and their Applications Year : 2016

Importance Sampling and Statistical Romberg Method for L\'evy Processes

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Abstract

An important family of stochastic processes arising in many areas of applied probability is the class of L\'evy processes. Generally, such processes are not simulatable especially for those with infinite activity. In practice, it is common to approximate them by truncating the jumps at some cut-off size $\varepsilon$ ($\varepsilon\searrow 0$). This procedure leads us to consider a simulatable compound Poisson process. This paper first introduces, for this setting, the statistical Romberg method to improve the complexity of the classical Monte Carlo one. Roughly speaking, we use many sample paths with a coarse cut-off $\varepsilon^{\beta},$ $\beta\in(0,1)$, and few additional sample paths with a fine cut-off $\varepsilon$. Central limit theorems of Lindeberg-Feller type for both Monte Carlo and statistical Romberg method for the inferred errors depending on the parameter $\varepsilon$ are proved. This leads to an accurate description of the optimal choice of parameters with explicit limit variances. Afterwards, the authors propose a stochastic approximation method of finding the optimal measure change by Esscher transform for L\'evy processes with Monte Carlo and statistical Romberg importance sampling variance reduction. Furthermore, we develop new adaptive Monte Carlo and statistical Romberg algorithms and prove the associated central limit theorems. Finally, numerical simulations are processed to illustrate the efficiency of the adaptive statistical Romberg method that reduces at the same time the variance and the computational effort associated to the effective computation of option prices when the underlying asset process follows an exponential pure jump CGMY model.

Dates and versions

hal-02332468 , version 1 (24-10-2019)

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M. Ben Alaya, K. Hajji, A. Kebaier. Importance Sampling and Statistical Romberg Method for L\'evy Processes. Stochastic Processes and their Applications, 2016, 126 (7), pp.1901-1931. ⟨10.1016/j.spa.2015.12.008⟩. ⟨hal-02332468⟩
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