Using moment approximations to study the density of jump driven SDEs

Abstract

In order to study the regularity of the density of a solution of a infinite activity jump driven stochastic differential equation we consider the following two-step approximation method. First, we use the solution of the moment problem in order to approximate the small jumps by another whose Lévy measure has finite support. In a second step we replace the approximation of the first two moments by a small noise Brownian motion based on the Assmussen-Rosiński approach. This approximation needs to satisfy certain properties in order to apply the “balance” method which allows the study of densities for the solution process based on Malliavin Calculus for the Brownian motion. Our results apply to situations where the Lévy measure is absolutely continuous with respect to the Lebesgue measure or purely atomic measures or combinations of them.