Cubature on Wiener space: pathwise convergence
Probability
2013-04-18 v1 Computational Finance
Abstract
Cubature on Wiener space [Lyons, T.; Victoir, N.; Proc. R. Soc. Lond. A 8 January 2004 vol. 460 no. 2041 169-198] provides a powerful alternative to Monte Carlo simulation for the integration of certain functionals on Wiener space. More specifically, and in the language of mathematical finance, cubature allows for fast computation of European option prices in generic diffusion models. We give a random walk interpretation of cubature and similar (e.g. the Ninomiya--Victoir) weak approximation schemes. By using rough path analysis, we are able to establish weak convergence for general path-dependent option prices.
Keywords
Cite
@article{arxiv.1304.4623,
title = {Cubature on Wiener space: pathwise convergence},
author = {Christian Bayer and Peter K. Friz},
journal= {arXiv preprint arXiv:1304.4623},
year = {2013}
}