A scheme for simulating one-dimensional diffusion processes with discontinuous coefficients

Abstract

The aim of this article is to provide a scheme for simulating diffusion processes evolving in one-dimensional discontinuous media. This scheme does not rely on smoothing the coefficients that appear in the infinitesimal generator of the diffusion processes, but uses instead an exact description of the behavior of their trajectories when they reach the points of discontinuity. This description is supplied with the local comparison of the trajectories of the diffusion processes with those of a skew Brownian motion.

Published at http://dx.doi.org/10.1214/105051605000000656 in the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)

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