An efficient method to simulate diffusion bridges

Abstract

In this paper, we provide a unified approach to simulate diffusion bridges. The proposed method covers a wide range of processes including univariate and multivariate diffusions, and the diffusions can be either time-homogeneous or time-inhomogeneous. We provide a theoretical framework for the proposed method. In particular, using the parametrix representations we show that the approximated probability transition density function converges to that of the true diffusion, which in turn implies the convergence of the approximation. Unlike most of the methods proposed in the literature, our approach does not involve acceptance-rejection mechanics. That is, it is acceptance-rejection free. Extensive numerical examples are provided for illustration and demonstrate the accuracy of the proposed method.