On explicit solutions to Ito diffusions

Michael A. Kouritzin; Bruno Remillard

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arXiv · 1608.05362

On explicit solutions to Ito diffusions

Michael A. Kouritzin·Bruno Remillard

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Abstract

Strong solutions of p-dimensional stochastic differential equations that can be represented locally in explicit simulation form are considered. The following three-way equivalence is established: 1) There exists such a representation from all starting points, 2) the representation pair satisfies a set differential equations, and 3) the stochastic differential equation coefficients satisfy commutation relations. Next, construction theorems, based on a diffeomorphism between the original equation solutions and the strong solutions to a simpler Ito integral equation, with a possible deterministic component, are given. Finally, motivating examples are provided and reference to its importance in filtering and option pricing is given.

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Michael A. Kouritzin, Bruno Remillard. 2016-08-18. On explicit solutions to Ito diffusions. https://arxiv.org/abs/1608.05362

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