Uniform approximation of the Cox-Ingersoll-Ross process

Grigori N. Milstein, John Schoenmakers

Published 2013-12-03Version 1

The Doss-Sussmann (DS) approach is used for uniform simulation of the Cox-Ingersoll-Ross (CIR) process. The DS formalism allows to express trajectories of the CIR process through solutions of some ordinary differential equation (ODE) depending on realizations of a Wiener process involved. By simulating the first-passage times of the increments of the Wiener process to the boundary of an interval and solving the ODE, we uniformly approximate the trajectories of the CIR process. In this respect special attention is payed to simulation of trajectories near zero. From a conceptual point of view the proposed method gives a better quality of approximation (from a path-wise point of view) than standard, or even exact simulation of the SDE at some discrete time grid.