On a positivity preserving numerical scheme for jump-extended CIR process: The alpha-stable case

Libo Li, Dai Taguchi

Research output: Contribution to journalArticlepeer-review

Abstract

We propose a positivity preserving implicit Euler-Maruyama scheme for a jump-extended Cox-Ingersoll-Ross (CIR) process where the jumps are governed by a compensated spectrally positive a-stable process for α ∈ (1;2). Different to the existing positivity preserving numerical schemes for jump-extended CIR or CEV (Constant Elasticity Variance) process, the model considered here has infinite activity jumps. We calculate, in this specific model, the strong rate of convergence and give some numerical illustrations. Jump extended models of this type were initially studied in the context of branching processes and was recently introduced to the financial mathematics literature to model sovereign interest rates, power and energy markets.

MSC Codes 60H35, 41A25, 60H10, 65C30

Original languageEnglish
JournalUnknown Journal
Publication statusPublished - Apr 22 2018
Externally publishedYes

Keywords

  • alpha-CIR models
  • Euler-Maruyama scheme
  • Hölder continuous coefficients
  • Implicit scheme
  • Lévy driven SDEs
  • Spectrally positive Lévy process

ASJC Scopus subject areas

  • General

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