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Journal of Scientific Computing

, Volume 79, Issue 2, pp 867–890 | Cite as

An Implementation of Milstein’s Method for General Bounded Diffusions

  • Francisco BernalEmail author
Article
  • 26 Downloads

Abstract

Despite its generality and powerful convergence properties, Milstein’s method for functionals of spatially bounded stochastic differential equations is widely regarded as difficult to implement. This has likely prevented it from being utilised in applications. In this paper, we design and analyse in detail one such implementation. The presented method turns out to be on par with other, popular schemes in terms of computational cost—but with a (nearly) linear weak convergence rate under the usual smoothness requirements on coefficients and boundary. Two byproducts of theoretical interest are a new, non-standard rank-one update formula, and a connection between numerics of bounded diffusions and Eikonal equations. Three examples are worked out, confirming the accuracy and robustness of the method.

Keywords

Stopped diffusion Reflected diffusion Feynman–Kac formula Stochastic numerics Rank-one updates to matrix decompositions Eikonal equation 

Mathematics Subject Classification

60H35 65C30 65C05 

Notes

Acknowledgements

The author thanks J. A. Acebrón for proposing this work and helpful discussions throughout. Portuguese FCT funding is gratefully acknowledged.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.CMAPEcole PolytechniquePalaiseauFrance

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