Construction of a Mean Square Error Adaptive Euler–Maruyama Method With Applications in Multilevel Monte Carlo

Abstract

A formal mean square error expansion (MSE) is derived for Euler-Maruyama numerical solutions of stochastic differential equations (SDE). The error expansion is used to construct a pathwise, a posteriori, adaptive time-stepping Euler-Maruyama algorithm for numerical solutions of SDE, and the resulting algorithm is incorporated into a multilevel Monte Carlo (MLMC) algorithm for weak approximations of SDE. This gives an efficient MSE adaptive MLMC algorithm for handling a number of low-regularity approximation problems. In low-regularity numerical example problems, the developed adaptive MLMC algorithm is shown to outperform the uniform time-stepping MLMC algorithm by orders of magnitude, producing output whose error with high probability is bounded by TOL > 0 at the near-optimal MLMC cost rate б(TOL log(TOL)) that is achieved when the cost of sample generation is б(1).