Geodesic
Approximation of stochastic differential equations driven by α-stable Lévy motion
Applicationes Mathematicae, Tome 24 (1997) no. 2, pp. 149-168 Cet article a éte moissonné depuis la source Institute of Mathematics Polish Academy of Sciences

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In this paper we present a result on convergence of approximate solutions of stochastic differential equations involving integrals with respect to α-stable Lévy motion. We prove an appropriate weak limit theorem, which does not follow from known results on stability properties of stochastic differential equations driven by semimartingales. It assures convergence in law in the Skorokhod topology of sequences of approximate solutions and justifies discrete time schemes applied in computer simulations. An example is included in order to demonstrate that stochastic differential equations with jumps are of interest in constructions of models for various problems arising in science and engineering, often providing better description of real life phenomena than their Gaussian counterparts. In order to demonstrate the usefulness of our approach, we present computer simulations of a continuous time α-stable model of cumulative gain in the Duffie-Harrison option pricing framework.
DOI : 10.4064/am-24-2-149-168
Keywords: α-stable Lévy motion, convergence of approximate schemes, stochastic differential equations with jumps, stochastic modeling

Aleksander Janicki 1 ; Zbigniew Michna 1 ; Aleksander Weron 1

1 
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Aleksander Janicki; Zbigniew Michna; Aleksander Weron. Approximation of stochastic differential equations driven by α-stable Lévy motion. Applicationes Mathematicae, Tome 24 (1997) no. 2, pp. 149-168. doi: 10.4064/am-24-2-149-168

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