Aarhus Universitets segl

Markov Bridges, Bisection and Variance Reduction

by Søren Asmussen and Asger Hobolth
Thiele Research Reports Number 1 (January 2011)
Time-continuous Markov jump processes is a popular modelling tool in disciplines ranging from computational finance and operations research to human genetics and genomics. The data is often sampled at discrete points in time, and it can be useful to simulate sample paths between the datapoints. In this paper we firstly consider the problem of generating sample paths from a continuous-time Markov chain conditioned on the endpoints using a new algorithm based on the idea of bisection. Secondly we study the potential of the bisection algorithm for variance reduction. In particular, examples are presented where the methods of stratification, importance sampling and quasi Monte Carlo are investigated.
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