Simulation of BSDEs by Wiener chaos expansion (Q2454405)

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Simulation of BSDEs by Wiener chaos expansion
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    Simulation of BSDEs by Wiener chaos expansion (English)
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    13 June 2014
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    The authors consider the numerical approximation of solutions \((Y,Z)\) to real, scalar backward stochastic differential equations of the form \[ Y_t = \xi + \int_t^T f(s,Y_s,Z_s)ds -\int_t^T Z_s \cdot dB_s, \;\;0\leq t\leq T \] with real terminal random variable \(\xi\) and \(B\) being a \(d\)-dimensional Brownian motion. The paper presents a numerical scheme based on Wiener chaos expansion (of finite order) and Picard iteration. In particular, the scheme is a forward scheme calculating the necessary conditional expectations with chaos decomposition formulas; \(Z\) is computed via the Malliavin derivative. The convergence of the algorithm is established under suitable hypotheses, error bounds are computed and numerical experiments are carried out illustrating the theoretical results.
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    backward stochastic differential equations
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    numerical approximation
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    Wiener chaos expansion
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    Malliavin derivative
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