First order strong approximation of Ait-Sahalia-type interest rate model with Poisson jumps

10/29/2021
by   Ziyi Lei, et al.
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For Ait-Sahalia-type interest rate model with Poisson jumps, we are interested in strong convergence of a novel time-stepping method, called transformed jump-adapted backward Euler method (TJABEM). Under certain hypothesis, the considered model takes values in positive domain (0,∞). It is shown that the TJABEM can preserve the domain of the underlying problem. Furthermore, for the above model with non-globally Lipschitz drift and diffusion coefficients, the strong convergence rate of order one of the TJABEM is recovered with respect to a L^p-error criterion. Finally, numerical experiments are given to illustrate the theoretical results.

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