Weak consistency of the Euler method for numerically solving stochastic differential equations with discontinuous coefficients

We prove that, under appropriate conditions, the sequence of approximate solutions constructed according to the Euler scheme converges weakly to the (unique) solution of a stochastic differential equation with discontinuous coefficients. We also obtain a sufficient condition for the existence of a solution to a stochastic differential equation with discontinuous coefficients. These results are then applied to justify the technique of simulating continuous-time threshold autoregressive moving-average processes via the Euler scheme. (C) 1998 Elsevier Science B.V. All rights reserved.