Simulation of non-Lipschitz stochastic differential equations driven by α-stable noise: a method based on deterministic homogenisation

04/21/2020

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by   Georg A. Gottwald, et al.

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We devise an explicit method to integrate α-stable stochastic differential equations (SDEs) with non-Lipschitz coefficients. To mitigate against numerical instabilities caused by unbounded increments of the Lévy noise, we use a deterministic map which has the desired SDE as its homogenised limit. Moreover, our method naturally overcomes difficulties in expressing the Marcus integral explicitly. We present an example of an SDE with a natural boundary showing that our method respects the boundary whereas Euler-Maruyama discretisation fails to do so. As a by-product we devise an entirely deterministic method to construct α-stable laws.