Strong convergence rates and temporal regularity for Cox-Ingersoll-Ross processes and Bessel processes with accessible boundaries
- Working Paper
Cox-Ingersoll-Ross (CIR) processes are widely used in financial modeling such as in the Heston model for the approximative pricing of financial derivatives. Moreover, CIR processes are mathematically interesting due to the irregular square root function in the diffusion coefficient. In the literature, positive strong convergence rates for numerical approximations of CIR processes have been established in the case of an inaccessible boundary point. Since calibrations of the Heston model frequently result in parameters such that the boundary is accessible, we focus on this interesting case. Our main result shows for every p∈(0,∞) that the drift-implicit square-root Euler approximations proposed in Alfonsi (2005) converge in the strong L^p -distance with a positive rate for half of the parameter regime in which the boundary point is accessible. A key step in our proof is temporal regularity of Bessel processes. More precisely, we prove for every p∈(0,∞) that Bessel processes are temporally 1/2 -H\"older continuous in L^p Show more
Journal / seriesarXiv
Pages / Article No.
Organisational unit03951 - Jentzen, Arnulf / Jentzen, Arnulf
NotesSubmitted on 25 March 2014.
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