On exact sampling of the first passage event of Levy process with infinite Levy measure and bounded variation

Zhiyi Chi

Published 2012-07-10Version 1

We present an exact sampling method for the first passage event of a Levy process. The idea is to embed the process into another one whose first passage event can be sampled exactly, and then recover the part belonging to the former from the latter. The method is based on several distributional properties that appear to be new. We obtain general procedures to sample the first passage event of a subordinator across a regular non-increasing boundary, and that of a process with infinite Levy measure, bounded variation, and suitable drift across a constant level or interval. We give examples of application to a rather wide variety of Levy measures.