# American Institute of Mathematical Sciences

August  2019, 24(8): 3881-3903. doi: 10.3934/dcdsb.2018335

## Analysis of multilevel Monte Carlo path simulation using the Milstein discretisation

 1 Mathematical Institute, Oxford University, Oxford OX2 6GG, United Kingdom 2 Department of Mathematics and Computer Science, University of Southern Denmark, 5230 Odense, Denmark 3 Institute of Mathematics, University of Lübeck, 23562 Lübeck, Germany

* Corresponding author: Michael B. Giles

Received  March 2018 Published  January 2019

The multilevel Monte Carlo path simulation method introduced by Giles (Operations Research, 56(3):607-617, 2008) exploits strong convergence properties to improve the computational complexity by combining simulations with different levels of resolution. In this paper we analyse its efficiency when using the Milstein discretisation; this has an improved order of strong convergence compared to the standard Euler-Maruyama method, and it is proved that this leads to an improved order of convergence of the variance of the multilevel estimator. Numerical results are also given for basket options to illustrate the relevance of the analysis.

Citation: Michael B. Giles, Kristian Debrabant, Andreas Rössler. Analysis of multilevel Monte Carlo path simulation using the Milstein discretisation. Discrete & Continuous Dynamical Systems - B, 2019, 24 (8) : 3881-3903. doi: 10.3934/dcdsb.2018335
##### References:

show all references

##### References:
Asian option
Lookback option
Barrier option
Digital option
Orders of convergence for $V_\ell$ as observed numerically and proved analytically for both the Euler-Maruyama and Milstein discretisations; $\delta$ can be any strictly positive constant
 Euler-Maruyama Milstein option numerical analysis numerical analysis Lipschitz ${O} (h)$ ${O} (h)$ ${O} (h^2)$ ${O} (h^2)$ Asian ${O} (h)$ ${O} (h)$ ${O} (h^2)$ ${O} (h^2)$ lookback ${O} (h)$ ${O} (h)$ ${O} (h^2)$ ${O} (h^2 (\log h)^2)$ barrier ${O} (h^{1/2})$ ${o} (h^{1/2-\delta})$ ${O} (h^{3/2})$ ${o} (h^{3/2-\delta})$ digital ${O} (h^{1/2})$ ${O} (h^{1/2}\log h)$ ${O} (h^{3/2})$ ${o} (h^{3/2-\delta})$
 Euler-Maruyama Milstein option numerical analysis numerical analysis Lipschitz ${O} (h)$ ${O} (h)$ ${O} (h^2)$ ${O} (h^2)$ Asian ${O} (h)$ ${O} (h)$ ${O} (h^2)$ ${O} (h^2)$ lookback ${O} (h)$ ${O} (h)$ ${O} (h^2)$ ${O} (h^2 (\log h)^2)$ barrier ${O} (h^{1/2})$ ${o} (h^{1/2-\delta})$ ${O} (h^{3/2})$ ${o} (h^{3/2-\delta})$ digital ${O} (h^{1/2})$ ${O} (h^{1/2}\log h)$ ${O} (h^{3/2})$ ${o} (h^{3/2-\delta})$
 [1] Tetsuya Ishiwata, Young Chol Yang. Numerical and mathematical analysis of blow-up problems for a stochastic differential equation. Discrete & Continuous Dynamical Systems - S, 2021, 14 (3) : 909-918. doi: 10.3934/dcdss.2020391 [2] Nahed Naceur, Nour Eddine Alaa, Moez Khenissi, Jean R. Roche. Theoretical and numerical analysis of a class of quasilinear elliptic equations. Discrete & Continuous Dynamical Systems - S, 2021, 14 (2) : 723-743. doi: 10.3934/dcdss.2020354 [3] Lorenzo Zambotti. A brief and personal history of stochastic partial differential equations. Discrete & Continuous Dynamical Systems - A, 2021, 41 (1) : 471-487. doi: 10.3934/dcds.2020264 [4] Yueyang Zheng, Jingtao Shi. A stackelberg game of backward stochastic differential equations with partial information. Mathematical Control & Related Fields, 2020  doi: 10.3934/mcrf.2020047 [5] Bixiang Wang. Mean-square random invariant manifolds for stochastic differential equations. Discrete & Continuous Dynamical Systems - A, 2021, 41 (3) : 1449-1468. doi: 10.3934/dcds.2020324 [6] George W. Patrick. The geometry of convergence in numerical analysis. Journal of Computational Dynamics, 2021, 8 (1) : 33-58. doi: 10.3934/jcd.2021003 [7] Fathalla A. Rihan, Hebatallah J. Alsakaji. Stochastic delay differential equations of three-species prey-predator system with cooperation among prey species. Discrete & Continuous Dynamical Systems - S, 2020  doi: 10.3934/dcdss.2020468 [8] Guangjun Shen, Xueying Wu, Xiuwei Yin. Stabilization of stochastic differential equations driven by G-Lévy process with discrete-time feedback control. Discrete & Continuous Dynamical Systems - B, 2021, 26 (2) : 755-774. doi: 10.3934/dcdsb.2020133 [9] Siyang Cai, Yongmei Cai, Xuerong Mao. A stochastic differential equation SIS epidemic model with regime switching. Discrete & Continuous Dynamical Systems - B, 2020  doi: 10.3934/dcdsb.2020317 [10] Fabio Camilli, Giulia Cavagnari, Raul De Maio, Benedetto Piccoli. Superposition principle and schemes for measure differential equations. Kinetic & Related Models, 2021, 14 (1) : 89-113. doi: 10.3934/krm.2020050 [11] Zhenzhen Wang, Tianshou Zhou. Asymptotic behaviors and stochastic traveling waves in stochastic Fisher-KPP equations. Discrete & Continuous Dynamical Systems - B, 2020  doi: 10.3934/dcdsb.2020323 [12] Thomas Y. Hou, Dong Liang. Multiscale analysis for convection dominated transport equations. Discrete & Continuous Dynamical Systems - A, 2009, 23 (1&2) : 281-298. doi: 10.3934/dcds.2009.23.281 [13] Tetsuya Ishiwata, Takeshi Ohtsuka. Numerical analysis of an ODE and a level set methods for evolving spirals by crystalline eikonal-curvature flow. Discrete & Continuous Dynamical Systems - S, 2021, 14 (3) : 893-907. doi: 10.3934/dcdss.2020390 [14] Qingfeng Zhu, Yufeng Shi. Nonzero-sum differential game of backward doubly stochastic systems with delay and applications. Mathematical Control & Related Fields, 2021, 11 (1) : 73-94. doi: 10.3934/mcrf.2020028 [15] Stefan Ruschel, Serhiy Yanchuk. The spectrum of delay differential equations with multiple hierarchical large delays. Discrete & Continuous Dynamical Systems - S, 2021, 14 (1) : 151-175. doi: 10.3934/dcdss.2020321 [16] John Mallet-Paret, Roger D. Nussbaum. Asymptotic homogenization for delay-differential equations and a question of analyticity. Discrete & Continuous Dynamical Systems - A, 2020, 40 (6) : 3789-3812. doi: 10.3934/dcds.2020044 [17] Mugen Huang, Moxun Tang, Jianshe Yu, Bo Zheng. A stage structured model of delay differential equations for Aedes mosquito population suppression. Discrete & Continuous Dynamical Systems - A, 2020, 40 (6) : 3467-3484. doi: 10.3934/dcds.2020042 [18] Rim Bourguiba, Rosana Rodríguez-López. Existence results for fractional differential equations in presence of upper and lower solutions. Discrete & Continuous Dynamical Systems - B, 2021, 26 (3) : 1723-1747. doi: 10.3934/dcdsb.2020180 [19] Xin Zhao, Tao Feng, Liang Wang, Zhipeng Qiu. Threshold dynamics and sensitivity analysis of a stochastic semi-Markov switched SIRS epidemic model with nonlinear incidence and vaccination. Discrete & Continuous Dynamical Systems - B, 2020  doi: 10.3934/dcdsb.2021010 [20] Do Lan. Regularity and stability analysis for semilinear generalized Rayleigh-Stokes equations. Evolution Equations & Control Theory, 2021  doi: 10.3934/eect.2021002

2019 Impact Factor: 1.27