A recursive representation for decoupling time-state dependent jumps from jump-diffusion processes

Abstract

We establish a recursive representation that fully decouples jumps from a large class of multivariate inhomogeneous stochastic differential equations with jumps of general time-state dependent unbounded intensity, not of Lévy-driven type that essentially benefits a lot from independent and stationary increments. The recursive representation, along with a few related ones, are derived by making use of a jump time of the underlying dynamics as an information relay point in passing the past on to a previous iteration step to fill in the missing information on the unobserved trajectory ahead. We prove that the proposed recursive representations are convergent exponentially fast in the limit, and can be represented in a similar form to Picard iterates under the probability measure with its jump component suppressed. On the basis of each iterate, we construct upper and lower bounding functions that are also convergent towards the true solution as the iterations proceed. We provide numerical results to justify our theoretical findings.

Keywords:

• Jump-diffusion processes
• time-state dependent jump rate
• Picard iteration
• partial integro-differential equations
• first exit times

2020 Mathematics Subject Classifications:

• 91B30
• 60G51
• 65M15
• 65N15

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was partially supported by JSPS Grants-in-Aid for Scientific Research 20K22301 and 21K03347.