Markov chain approximations to scale functions of Lévy processes

We introduce a general algorithm for the computation of the scale functions of a spectrally negative Lévy process $X$, based on a natural weak approximation of $X$ via upwards skip-free continuous-time Markov chains with stationary independent increments. The algorithm consists of evaluating a finite linear recursion with its (nonnegative) coefficients given explicitly in terms of the Lévy triplet of $X$. Thus it is easy to implement and numerically stable. Our main result establishes sharp rates of convergence of this algorithm providing an explicit link between the semimartingale characteristics of $X$ and its scale functions, not unlike the one-dimensional Itô diffusion setting, where scale functions are expressed in terms of certain integrals of the coefficients of the governing SDE.

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