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Approximation of jump diffusions in finance and economics
2007
Computational Economics
In finance and economics the key dynamics are often specified via stochastic differential equations (SDEs) of jump-diffusion type. The class of jump-diffusion SDEs that admits explicit solutions is rather limited. Consequently, discrete time approximations are required. In this paper we give a survey of strong and weak numerical schemes for SDEs with jumps. Strong schemes provide pathwise approximations and therefore can be employed in scenario analysis, filtering or hedge simulation. Weak
doi:10.1007/s10614-006-9066-y
fatcat:nvqsxhn4szbflj6xxvgyxc4kye