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Alexandros Pavlis

Publications and source records attributed to Alexandros Pavlis.

2 recordsLinked to original sources

Weak convergence rate for the Cox-Ingersoll-Ross process

We study the weak convergence rate of a drift-implicit discretisation scheme for the Cox-Ingersoll-Ross (CIR) process in the regime where the process remains strictly positive. Specifically, we consider scheme~(4) of Alfonsi~\cite{A}, which arises naturally from applying a drift-implicit Euler step to the SDE satisfied by the square root of the CIR process and admits a unique positive closed-form solution at each time step. Using a PDE approach combined with a continuous-time SDE representation of the discretised process, we prove that the weak convergence rate is $\mathcal{O}(1/N)$ under the Feller condition $2\alpha\geq\theta^2$ and mild polynomial growth conditions on the payoff function. The proof requires only elementary techniques and, in particular, avoids the semi-exact simulation machinery used in earlier work. The methodology is expected to extend to a broader class of diffusion processes.

math.PR

A dynamic competitive equilibrium model of irreversible capacity investment with stochastic demand and heterogeneous producers

We formulate a continuous-time competitive equilibrium model of irreversible capacity investment in which a continuum of heterogeneous producers supplies a single non-durable good subject to exogenous stochastic demand. Each producer optimally adjusts both output and capacity over time in response to endogenous price signals, while investment decisions are irreversible. Market clearing holds continuously, with prices evolving endogenously to balance aggregate supply and demand through a constant-elasticity demand function driven by a stochastic base component. The model admits a mean-field interpretation, as each producer's decisions both influence and are influenced by the aggregate behaviour of all others. We show that the equilibrium price process can be expressed as a nonlinear functional of the exogenous base demand, leading to a three-dimensional singular stochastic control problem for each producer. We derive an explicit solution to the associated Hamilton-Jacobi-Bellman equation, including a closed-form characterisation of the free-boundary surface separating investment and waiting regions.

math.PR