Multi-step Richardson-Romberg Extrapolation: Remarks on Variance Control and complexity

Abstract

We propose a multi-step Richardson-Romberg extrapolation method for the computation of expectations $Ef(X_{{}_T})$ of a diffusion $(X_t{)}_{t\in [0,T]}$ when the weak time discretization error induced by the Euler scheme admits an expansion at an order $R\ge 2$. The complexity of the estimator grows as $R^2$ (instead of $2^R$) and its variance is asymptotically controlled by considering some consistent Brownian increments in the underlying Euler schemes. Some Monte carlo simulations carried with path-dependent options (lookback, barriers) which support the conjecture that their weak time discretization error also admits an expansion (in a different scale). Then an appropriate Richardson-Romberg extrapolation seems to outperform the Euler scheme with Brownian bridge.

28 pages, à paraître dans Monte Carlo Methods and Applications Journal

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