Approximation of Stochastic Volterra Equations with kernels of completely monotone type
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- by Aurélien Alfonsi and Ahmed Kebaier
- Math. Comp. 93 (2024), 643-677
- DOI: https://doi.org/10.1090/mcom/3911
- Published electronically: November 2, 2023
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Abstract:
In this work, we develop a multifactor approximation for $d$-dimensional Stochastic Volterra Equations (SVE) with Lipschitz coefficients and kernels of completely monotone type that may be singular. First, we prove an $L^2$-estimation between two SVEs with different kernels, which provides a quantification of the error between the SVE and any multifactor Stochastic Differential Equation (SDE) approximation. For the particular rough kernel case with Hurst parameter lying in $(0,1/2)$, we propose various approximating multifactor kernels, state their rates of convergence and illustrate their efficiency for the rough Bergomi model. Second, we study a Euler discretization of the multifactor SDE and establish a convergence result towards the SVE that is uniform with respect to the approximating multifactor kernels. These obtained results lead us to build a new multifactor Euler scheme that reduces significantly the computational cost in an asymptotic way compared to the Euler scheme for SVEs. Finally, we show that our multifactor Euler scheme outperforms the Euler scheme for SVEs for option pricing in the rough Heston model.References
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Bibliographic Information
- Aurélien Alfonsi
- Affiliation: CERMICS, Ecole des Ponts, Marne-la-Vallée, France; and MathRisk, Inria, Paris, France
- Email: aurelien.alfonsi@enpc.fr
- Ahmed Kebaier
- Affiliation: Laboratoire de Mathématiques et Modélisation d’Évry, CNRS, Univ Evry, Université Paris-Saclay, 91037 Evry, France
- MR Author ID: 774090
- ORCID: 0000-0003-3468-8811
- Email: ahmed.kebaier@univ-evry.fr
- Received by editor(s): June 14, 2022
- Received by editor(s) in revised form: May 15, 2023
- Published electronically: November 2, 2023
- Additional Notes: This work benefited from the support of the “chaire Risques financiers”, Fondation du Risque.
- © Copyright 2023 American Mathematical Society
- Journal: Math. Comp. 93 (2024), 643-677
- MSC (2020): Primary 60H35, 60G22, 91G60, 45D05
- DOI: https://doi.org/10.1090/mcom/3911
- MathSciNet review: 4678580