Past exam of the mathematics course of the University of Cambridge / 2023 / iii / Paper 356 / 2 / d

The Fokker-Planck equation corresponds to the Itô diffusionabsorbed at $0$ and reflected at $L$.

For $v(x)=x$, an Euler--Maruyama proposal isIf $Y\le 0$, kill the path. If $X_n>0$ and $Y>0$, an endpoint-only test can miss a crossing. Conditional on the endpoints, the local Brownian bridge crossing probability isKill the path with this probability; otherwise impose reflection at $L$ by replacing an overshoot $Y>L$ with $2L-Y$ and set $X_{n+1}=Y$. Repeated reflection handles very rare multiple overshoots, and the approximation converges as $\Delta t\to 0$.