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Error Bounds for Small Jumps of Lévy Processes
Published online by Cambridge University Press: 04 January 2016
Abstract
The pricing of options in exponential Lévy models amounts to the computation of expectations of functionals of Lévy processes. In many situations, Monte Carlo methods are used. However, the simulation of a Lévy process with infinite Lévy measure generally requires either truncating or replacing the small jumps by a Brownian motion with the same variance. We will derive bounds for the errors generated by these two types of approximation.
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- General Applied Probability
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- © Applied Probability Trust
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