A weak approximation with asymptotic expansion and multidimensional Malliavin weights

DOI10.1214/15-AAP1105zbMATH Open1339.60099arXiv1605.01243MaRDI QIDQ292908FDOQ292908

Authors: Akihiko Takahashi, Toshihiro Yamada 

Publication date: 9 June 2016

Published in: The Annals of Applied Probability (Search for Journal in Brave)

Abstract: This paper develops a new efficient scheme for approximations of expectations of the solutions to stochastic differential equations (SDEs). In particular, we present a method for connecting approximate operators based on an asymptotic expansion with multidimensional Malliavin weights to compute a target expectation value precisely. The mathematical validity is given based on Watanabe and Kusuoka theories in Malliavin calculus. Moreover, numerical experiments for option pricing under local and stochastic volatility models confirm the effectiveness of our scheme. Especially, our weak approximation substantially improves the accuracy at deep Out-of-The-Moneys (OTMs).

Full work available at URL: https://arxiv.org/abs/1605.01243

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zbMATH Keywords

asymptotic expansionMalliavin calculusoption pricingstochastic differential equationsstochastic volatility modelsweak approximationexpectationsKusuoka schemeWatanabe theory

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Stochastic calculus of variations and the Malliavin calculus (60H07) Numerical methods (including Monte Carlo methods) (91G60) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical solutions to stochastic differential and integral equations (65C30) Financial applications of other theories (91G80)

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Cited In (29)

• Weak Approximation of Stochastic Differential Equations and Application to Derivative Pricing
• Asymptotic expansion for forward-backward SDEs with jumps
• Solving backward stochastic differential equations with quadratic-growth drivers by connecting the short-term expansions
• A high order weak approximation for jump-diffusions using Malliavin calculus and operator splitting
• Weak Milstein scheme without commutativity condition and its error bound
• A new efficient approximation scheme for solving high-dimensional semilinear PDEs: control variate method for deep BSDE solver
• A third-order weak approximation of multidimensional Itô stochastic differential equations
• A control variate method for weak approximation of SDEs via discretization of numerical error of asymptotic expansion
• Pricing discretely monitored barrier options: when Malliavin calculus expansions meet Hilbert transforms
• An arbitrary high order weak approximation of SDE and Malliavin Monte Carlo: analysis of probability distribution functions
• A higher order weak approximation scheme of multidimensional stochastic differential equations using Malliavin weights
• Total variation bound for Milstein scheme without iterated integrals
• High order weak approximation for irregular functionals of time-inhomogeneous SDEs
• A weak approximation method for irregular functionals of hypoelliptic diffusions
• New asymptotic expansion formula via Malliavin calculus and its application to rough differential equation driven by fractional Brownian motion
• A higher order weak approximation of McKean-Vlasov type SDEs
• Second order discretization of Bismut-Elworthy-Li formula: application to sensitivity analysis
• Operator splitting around Euler-Maruyama scheme and high order discretization of heat kernels
• Weak approximation of SDEs for tempered distributions and applications
• A second-order discretization with Malliavin weight and Quasi-Monte Carlo method for option pricing
• Control variate method for deep BSDE solver using weak approximation
• A second-order discretization for forward-backward SDEs using local approximations with Malliavin calculus
• Deep Weak Approximation of SDEs: A Spatial Approximation Scheme for Solving Kolmogorov Equations
• Solving Kolmogorov PDEs without the curse of dimensionality via deep learning and asymptotic expansion with Malliavin calculus
• Pricing average and spread options under local-stochastic volatility jump-diffusion models
• A new algorithm for computing path integrals and weak approximation of SDEs inspired by large deviations and Malliavin calculus
• Pricing and exercising American options: an asymptotic expansion approach
• A second-order weak approximation of SDEs using a Markov chain without Lévy area simulation
• Acceleration of automatic differentiation of solutions to parabolic partial differential equations: a higher order discretization

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