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Construction of a mean square error adaptive Euler–Maruyama method with applications in multilevel Monte Carlo

Bibliography:

Hakon Hoel, Juho Happola, and Raul Tempone, Construction of a mean square error adaptive Euler–Maruyama method with applications in multilevel Monte Carlo. 2014​​​

Authors:

Hakon Hoel, Juho Happola, and Raul Tempone

Keywords:

Adaptive time stepping, stochastic differential equations, multilevel Monte Carlo.

Year:

2014

Abstract:

A formal mean square error expansion (MSE) is derived for Euler–Maruyama numerical solutions of stochastic differential equations (SDE). The error expansion is used to construct a pathwise a posteriori adaptive time stepping Euler–Maruyama method for numerical solutions of SDE, and the resulting method is incorporated into a multilevel Monte Carlo (MLMC) method for weak approximations of SDE. This gives an efficient MSE adaptive MLMC method for handling a number of low-regularity approximation problems. In low-regularity numerical example problems, the developed adaptive MLMC method is shown to outperform the uniform time stepping MLMC method by orders of magnitude, producing output whose error with high probability is bounded by TOL at the near-optimal cost rate O(TOL-2 log(TOL)4 ).​

ISSN:

2014