Applied Probability Trust (3 February 2013) EXACT SIMULATION FOR DIFFUSION BRIDGES – AN ADAP- TIVE APPROACH

Exact simulation approaches for a class of diffusion bridges have recently been proposed based on rejection sampling techniques. The existing rejection sampling methods may not be practical due to small acceptance probabilities. This paper proposes an adaptive approach which improves the existing methods significantly under certain scenarios. The idea of the new method is based on a layered process, which can be simulated from a layered Brownian motion with re-weighted layer probabilities. We will show that the new exact simulation method is more efficient than existing methods theoretically and via simulation.