On Weak Predictor–Corrector Schemes for Jump-Diffusion Processes in Finance

  • Nicola Bruti-Liberati
  • Eckhard PlatenEmail author
Conference paper
Part of the Springer Proceedings in Mathematics & Statistics book series (PROMS, volume 19)


Event-driven uncertainties such as corporate defaults, operational failures, or central bank announcements are important elements in the modeling of financial quantities. Therefore, stochastic differential equations (SDEs) of jump-diffusion type are often used in finance. We consider in this paper weak discrete time approximations of jump-diffusion SDEs which are appropriate for problems such as derivative pricing and the evaluation of risk measures. We present regular and jump-adapted predictor–corrector schemes with first and second order of weak convergence. The regular schemes are constructed on regular time discretizations that do not include jump times, while the jump-adapted schemes are based on time discretizations that include all jump times. A numerical analysis of the accuracy of these schemes when applied to the jump-diffusion Merton model is provided.


Poisson Process Weak Convergence Implicit Scheme Corrector Scheme Euler Scheme 
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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.School of Finance & EconomicsUniversity of TechnologySydneyAustralia
  2. 2.School of Finance & Economics and Department of Mathematical SciencesUniversity of TechnologySydneyAustralia

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