Search Results
Reinforced optimal control
2020, Bayer, Christian, Belomestny, Denis, Hager, Paul, Pigato, Paolo, Schoenmakers, John G. M., Spokoiny, Vladimir
Least squares Monte Carlo methods are a popular numerical approximation method for solving stochastic control problems. Based on dynamic programming, their key feature is the approximation of the conditional expectation of future rewards by linear least squares regression. Hence, the choice of basis functions is crucial for the accuracy of the method. Earlier work by some of us [Belomestny, Schoenmakers, Spokoiny, Zharkynbay, Commun. Math. Sci., 18(1):109?121, 2020] proposes to reinforce the basis functions in the case of optimal stopping problems by already computed value functions for later times, thereby considerably improving the accuracy with limited additional computational cost. We extend the reinforced regression method to a general class of stochastic control problems, while considerably improving the method?s efficiency, as demonstrated by substantial numerical examples as well as theoretical analysis.
Randomized optimal stopping algorithms and their convergence analysis
2020, Bayer, Christian, Belomestny, Denis, Hager, Paul, Pigato, Paolo, Schoenmakers, John G. M.
In this paper we study randomized optimal stopping problems and consider corresponding forward and backward Monte Carlo based optimization algorithms. In particular we prove the convergence of the proposed algorithms and derive the corresponding convergence rates.
RKHS regularization of singular local stochastic volatility McKean--Vlasov models
2022, Bayer, Christian, Belomestny, Denis, Butkovsky, Oleg, Schoenmakers, John G. M.
Motivated by the challenges related to the calibration of financial models, we consider the problem of solving numerically a singular McKean-Vlasov equation, which represents a singular local stochastic volatility model. Whilst such models are quite popular among practitioners, unfortunately, its well-posedness has not been fully understood yet and, in general, is possibly not guaranteed at all. We develop a novel regularization approach based on the reproducing kernel Hilbert space (RKHS) technique and show that the regularized model is well-posed. Furthermore, we prove propagation of chaos. We demonstrate numerically that a thus regularized model is able to perfectly replicate option prices due to typical local volatility models. Our results are also applicable to more general McKean--Vlasov equations.