Approximating a Diffusion by a Hidden Markov Model

For a wide class of continuous-time Markov processes, including all irreducible hypoel-liptic diffusions evolving on an open, connected subset of Rd, the following are shown to be equivalent: (i) The process satisfies (a slightly weaker version of) the classical Donsker-Varadhan conditions; (ii) The transition semigroup of the process can be approximated by a finite-state hidden Markov model, in a strong sense in terms of an associated operator norm; (iii) The resolvent kernel of the process is ‘v-separable’, that is, it can be approximated arbitrarily well in operator norm by finite-rank kernels. Under any (hence all) of the above conditions, the Markov process is shown to have a purely discrete spectrum on a naturally associated weighted L ∞ space