Higher-order semi-implicit Taylor schemes for Itô stochastic differential equations

AbstractThe paper considers the derivation of families of semi-implicit schemes of weak order N=3.0 (general case) and N=4.0 (additive noise case) for the numerical solution of Itô stochastic differential equations. The degree of implicitness of the schemes depends on the selection of N parameters which vary between 0 and 1 and the families contain as particular cases the 3.0 and 4.0 weak order explicit Taylor schemes. Since the implementation of the multiple integrals that appear in these theoretical schemes is difficult, for the applications they are replaced by simpler random variables, obtaining simplified schemes. In this way, for the multidimensional case with one-dimensional noise, we present an infinite family of semi-implicit simplified schemes of weak order 3.0 and for the multidimensional case with additive one-dimensional noise, we give an infinite family of semi-implicit simplified schemes of weak order 4.0. The mean-square stability of the 3.0 family is analyzed, concluding that, as in the deterministic case, the stability behavior improves when the degree of implicitness grows. Numerical experiments confirming the theoretical results are shown

Split-step forward methods for stochastic differential equations

AbstractIn this paper we discuss split-step forward methods for solving Itô stochastic differential equations (SDEs). Eight fully explicit methods, the drifting split-step Euler (DRSSE) method, the diffused split-step Euler (DISSE) method and the three-stage Milstein (TSM 1a–TSM 1f) methods, are constructed based on Euler–Maruyama method and Milstein method, respectively, in this paper. Their order of strong convergence is proved. The analysis of stability shows that the mean-square stability properties of the methods derived in this paper are improved on the original methods. The numerical results show the effectiveness of these methods in the pathwise approximation of Itô SDEs

A brief analysis of certain numerical methods used to solve stochastic differential equations

Stochastic differential equations (SDE’s) are used to describe systems which are influenced by randomness. Here, randomness is modelled as some external source interacting with the system, thus ensuring that the stochastic differential equation provides a more realistic mathematical model of the system under investigation than deterministic differential equations. The behaviour of the physical system can often be described by probability and thus understanding the theory of SDE’s requires the familiarity of advanced probability theory and stochastic processes. SDE’s have found applications in chemistry, physical and engineering sciences, microelectronics and economics. But recently, there has been an increase in the use of SDE’s in other areas like social sciences, computational biology and finance. In modern financial practice, asset prices are modelled by means of stochastic processes. Thus, continuous-time stochastic calculus plays a central role in financial modelling. The theory and application of interest rate modelling is one of the most important areas of modern finance. For example, SDE’s are used to price bonds and to explain the term structure of interest rates. Commonly used models include the Cox-Ingersoll-Ross model; the Hull-White model; and Heath-Jarrow-Morton model. Since there has been an expansion in the range and volume of interest rate related products being traded in the international financial markets in the past decade, it has become important for investment banks, other financial institutions, government and corporate treasury offices to require ever more accurate, objective and scientific forms for the pricing, hedging and general risk management of the resulting positions. Similar to ordinary differential equations, many SDE’s that appear in practical applications cannot be solved explicitly and therefore require the use of numerical methods. For example, to price an American put option, one requires the numerical solution of a free-boundary partial differential equation. There are various approaches to solving SDE’s numerically. Monte Carlo methods could be used whereby the physical system is simulated directly using a sequence of random numbers. Another method involves the discretisation of both the time and space variables. However, the most efficient and widely applicable approach to solving SDE’s involves the discretisation of the time variable only and thus generating approximate values of the sample paths at the discretisation times. This paper highlights some of the various numerical methods that can be used to solve stochastic differential equations. These numerical methods are based on the simulation of sample paths of time discrete approximations. It also highlights how these methods can be derived from the Taylor expansion of the SDE, thus providing opportunities to derive more advanced numerical schemes.Dissertation (MSc (Mathematics of Finance))--University of Pretoria, 2007.Mathematics and Applied MathematicsMScunrestricte

SEEDS: Exponential SDE Solvers for Fast High-Quality Sampling from Diffusion Models

A potent class of generative models known as Diffusion Probabilistic Models (DPMs) has become prominent. A forward diffusion process adds gradually noise to data, while a model learns to gradually denoise. Sampling from pre-trained DPMs is obtained by solving differential equations (DE) defined by the learnt model, a process which has shown to be prohibitively slow. Numerous efforts on speeding-up this process have consisted on crafting powerful ODE solvers. Despite being quick, such solvers do not usually reach the optimal quality achieved by available slow SDE solvers. Our goal is to propose SDE solvers that reach optimal quality without requiring several hundreds or thousands of NFEs to achieve that goal. We propose Stochastic Explicit Exponential Derivative-free Solvers (SEEDS), improving and generalizing Exponential Integrator approaches to the stochastic case on several frameworks. After carefully analyzing the formulation of exact solutions of diffusion SDEs, we craft SEEDS to analytically compute the linear part of such solutions. Inspired by the Exponential Time-Differencing method, SEEDS use a novel treatment of the stochastic components of solutions, enabling the analytical computation of their variance, and contains high-order terms allowing to reach optimal quality sampling $\sim3$-$5\times$ faster than previous SDE methods. We validate our approach on several image generation benchmarks, showing that SEEDS outperform or are competitive with previous SDE solvers. Contrary to the latter, SEEDS are derivative and training free, and we fully prove strong convergence guarantees for them.Comment: 60 pages. Camera-Ready version for the 37th Conference on Neural Information Processing Systems (NeurIPS 2023

Numerical schemes and Monte Carlo techniques for Greeks in stochastic volatility models

The main objective of this thesis is to propose approximations to option sensitivities in stochastic volatility models. The first part explores sequential Monte Carlo techniques for approximating the latent state in a Hidden Markov Model. These techniques are applied to the computation of Greeks by adapting the likelihood ratio method. Convergence of the Greek estimates is proved and tracking of option prices is performed in a stochastic volatility model. The second part defines a class of approximate Greek weights and provides high-order approximations and justification for extrapolation techniques. Under certain regularity assumptions on the value function of the problem, Greek approximations are proved for a fully implementable Monte Carlo framework, using weak Taylor discretisation schemes. The variance and bias are studied for the Delta and Gamma, when using such discrete-time approximations. The final part of the thesis introduces a modified explicit Euler scheme for stochastic differential equations with non-Lipschitz continuous drift or diffusion; a strong rate of convergence is proved. The literature on discretisation techniques for stochastic differential equations has been motivational for the development of techniques preserving the explicitness of the algorithm. Stochastic differential equations in the mathematical finance literature, including the Cox-Ingersoll-Ross, the 3/2 and the Ait-Sahalia models can be discretised, with a strong rate of convergence proved, which is a requirement for multilevel Monte Carlo techniques.Open Acces

Stochastic Parameterization: A Rigorous Approach to Stochastic Three-Dimensional Primitive Equations

The atmosphere is a strongly nonlinear and infinite-dimensional dynamical system acting on a multitude of different time and space scales. A possible problem of numerical weather prediction and climate modeling using deterministic parameterization of subscale and unresolved processes is the incomplete consideration of scale interactions. A stochastic treatment of these parameterizations bears the potential to improve the simulations and to provide a better understanding of the scale interactions of the simulated atmospheric variables. The scientific community that is dealing with stochastic meteorological models can be divided into two groups: the first one uses pragmatic approaches to improve existing complex models. The second group pursues a mathematical rigorous way to develop stochastic models, which is currently limited to conceptual models. The overall objective of this work is to narrow the gap between pragmatic approaches and the mathematical rigorous methods. Using conceptual climate models, we point out that a stochastic formulation must not be chosen arbitrarily but has to be derived based on the physics of the system at hand. Equally important is a rigorous numerical implementation of the resulting stochastic model. The dynamics of sub grid and unresolved processes are often described by time continuous stochastic processes, which cannot be treated with deterministic numerical schemes. We show that a stochastic formulation of the three-dimensional primitive equations fits in the mathematical framework of abstract stochastic fluid models. This allows us to utilize recent results regarding existence and uniqueness of solutions of such systems. Based on these theoretical results we propose a Galerkin scheme for the discretization of spatial and stochastic dimensions. Using the framework of mild solutions of stochastic partial differential equations we are able to prove quantitative error bounds and strong mean square convergence. Under additional assumptions we show the convergence of a numerical scheme which combines the Galerkin approximation with a temporal discretization.Stochastische Parametrisierung: Ein Rigoroser Ansatz für die Stochastischen Drei-Dimensionalen Primitiven Gleichungen Die Atmosphäre ist ein von starken Nichtlinearitäten geprägtes, unendlich-linebreak dimensionales dynamisches System, dessen Variablen auf einer Vielzahl verschiedener Raum- und Zeitskalen interagieren. Ein potentielles Problem von Modellen zur numerischen Wettervorhersage und Klimamodellierung, die auf deterministischen Parametrisierungen subskaliger Prozesse beruhen, ist die unzureichende Behandlung der Interaktion zwischen diesen Prozessen und den Modellvariablen. Eine stochastische Beschreibung dieser Parametrisierungen hat das Potential die Qualität der Simulationen zu verbessern und das Verständnis der Skalen-Interaktion atmosphärischer Variablen zu vertiefen. Die wissenschaftlich Gemeinschaft, die sich mit stochastischen meteorologischen Modellen beschäftigt, kann grob in zwei Gruppen unterteilt werden: die erste Gruppe ist bemüht durch pragmatische Ansätze bestehende, komplexe Modelle zu erweitern. Die zweite Gruppe verfolgt einen mathematisch rigorosen Weg, um stochastische Modelle zu entwickeln. Dies ist jedoch aufgrund der mathematischen Komplexität bisher auf konzeptionelle Modelle beschränkt. Das generelle Ziel der vorliegenden Arbeit ist es, die Kluft zwischen den pragmatischen und mathematisch rigorosen Ansätzen zu verringern. Die Diskussion zweier konzeptioneller Klimamodelle verdeutlicht, dass eine stochastische Formulierung nicht willkürlich gewählt werden darf, sondern aus der Physik des betrachteten Systems abgeleitet werden muss. Ebenso unabdingbar ist eine rigorose numerische Implementierung des resultierenden stochastischen Modells. Diesem Aspekt wird besondere Bedeutung zu Teil, da dynamische subskalige Prozesse oftmals durch zeitabhängige stochastische Prozesse beschrieben werden, die sich nicht mit deterministischen numerischen Methoden behandeln lassen. Wir zeigen auf, dass eine stochastische Formulierung der dreidimensionalen primitiven Gleichungen im mathematischen Rahmen abstrakter stochastischer Fluidmodelle behandelt werden kann. Dies ermöglicht die Anwendung kürzlich gewonnener Erkenntnisse bezüglich Existenz und Eindeutigkeit von Lösungen. Wir stellen einen auf dieser theoretischen Grundlage basierenden Galerkin Ansatz zur Diskretisierung der räumlichen und stochastischen Dimensionen vor. Mit Hilfe sogenannter milder Lösungen der stochastischen partiellen Differentialgleichungen leiten wir quantitative Schranken der Diskretisierungsfehler her und zeigen die starke Konvergenz des mittleren quadratischen Fehlers. Unter zusätzlichen Annahmen leiten wir die Konvergenz eines numerischen Verfahrens her, das den Galerkin Ansatz um eine zeitliche Diskretisierung erweitert

Three-dimensional stochastic modeling of radiation belts in adiabatic invariant coordinates

A 3-D model for solving the radiation belt diffusion equation in adiabatic invariant coordinates has been developed and tested. The model, named REM (for Radbelt Electron Model), obtains a probabilistic solution by solving a set of Itô stochastic differential equations that are mathematically equivalent to the diffusion equation. This method is capable of solving diffusion equations with a full 3-D diffusion tensor, including the radial-local cross diffusion components. The correct form of the boundary condition at equatorial pitch-angle α0 = 90° is also derived. The model is applied to a simulation of the October 2002 storm event. At α0 near 90°, our results are quantitatively consistent with GPS observations of phase-space density (PSD) increases, suggesting dominance of radial diffusion; at smaller α0, the observed PSD increases are overestimated by the model, possibly due to the α0-independent radial diffusion coefficients, or to insufficientelectron loss in the model, or both. Statistical analysis of the stochastic processes provides further insights into the diffusion processes, showing distinctive electron source distributions with and without local acceleration

Analysis of a splitting scheme for a class of nonlinear stochastic Schr\uf6dinger equations

We analyze the qualitative properties and the order of convergence of a splitting scheme for a class of nonlinear stochastic Schr\uf6dinger equations driven by additive It\uf4 noise. The class of nonlinearities of interest includes nonlocal interaction cubic nonlinearities. We show that the numerical solution is symplectic and preserves the expected mass for all times. On top of that, for the convergence analysis, some exponential moment bounds for the exact and numerical solutions are proved. This enables us to provide strong orders of convergence as well as orders of convergence in probability and almost surely. Finally, extensive numerical experiments illustrate the performance of the proposed numerical scheme

Milstein Approximation for Advection-Diffusion Equations Driven by Multiplicative Noncontinuous Martingale Noises

In this paper, the strong approximation of a stochastic partial differential equation, whose differential operator is of advection-diffusion type and which is driven by a multiplicative, infinite dimensional, càdlàg, square integrable martingale, is presented. A finite dimensional projection of the infinite dimensional equation, for example a Galerkin projection, with nonequidistant time stepping is used. Error estimates for the discretized equation are derived inL 2 and almost sure senses. Besides space and time discretizations, noise approximations are also provided, where the Milstein double stochastic integral is approximated in such a way that the overall complexity is not increased compared to an Euler-Maruyama approximation. Finally, simulations complete the pape