Adaptive multilevel Monte Carlo for probabilities

DOI10.1137/21M1447064MaRDI QIDQ5096456zbMATH OpenOpenAlexFDO

Authors Abdul-Lateef Haji-Ali, Jonathan Spence, A. L. Teckentrup

Publication date 17 August 2022

Published in SIAM Journal on Numerical Analysis (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2107.09148

zbMATH Keywords

multilevel Monte Carlo methodnested simulationrisk estimation

Mathematics Subject Classification ID

Applications of statistics to actuarial sciences and financial mathematics (62P05) Monte Carlo methods (65C05)

Abstract: We consider the numerical approximation of $mathbbP[GinOmega]$ where the $d$-dimensional random variable $G$ cannot be sampled directly, but there is a hierarchy of increasingly accurate approximations ${G_{e}ll}_{ellinmathbbN}$ which can be sampled. The cost of standard Monte Carlo estimation scales poorly with accuracy in this setup since it compounds the approximation and sampling cost. A direct application of Multilevel Monte Carlo improves this cost scaling slightly, but returns sub-optimal computational complexities since estimation of the probability involves a discontinuous functional of $G_{e}ll$. We propose a general adaptive framework which is able to return the MLMC complexities seen for smooth or Lipschitz functionals of $G_{e}ll$. Our assumptions and numerical analysis are kept general allowing the methods to be used for a wide class of problems. We present numerical experiments on nested simulation for risk estimation, where $G=mathbbE[X|Y]$ is approximated by an inner Monte Carlo estimate. Further experiments are given for digital option pricing, involving an approximation of a $d$-dimensional SDE.

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Cited in

(17)

• Determining optimal multilevel Monte Carlo parameters with application to fault tolerance
• Nested adaptation of MCMC algorithms
• Geometric adaptive Monte Carlo in random environment
• Goal-oriented adaptive modeling of random heterogeneous media and model-based multilevel Monte Carlo methods
• A continuation multilevel Monte Carlo algorithm
• MLMC for nested expectations
• Multilevel nested simulation for efficient risk estimation
• Multifidelity Monte Carlo Estimation with Adaptive Low-Fidelity Models
• A multilevel Monte Carlo method for computing failure probabilities
• Multilevel Monte Carlo with numerical smoothing for robust and efficient computation of probabilities and densities
• Multilevel path branching for digital options
• A multilevel stochastic approximation algorithm for value-at-risk and expected shortfall estimation
• MLMC techniques for discontinuous functions
• Asymptotic error analysis of multilevel stochastic approximations for the value-at-risk and expected shortfall
• A Multilevel Interacting Particle System Method for the estimation of Failure Probabilities
• Efficient risk estimation for the credit valuation adjustment
• Adaptive sequential Monte Carlo by means of mixture of experts

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