New kinds of high-order multistep schemes for coupled forward backward stochastic differential equations

DOI10.1137/130941274MaRDI QIDQ2930007OpenAlexarXivFDO

Authors Weidong Zhao, Yu Fu, Tao Zhou

Publication date 17 November 2014

Published in SIAM Journal on Scientific Computing (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1310.5307

zbMATH Keywords

diffusion processhigh ordernumerical experimentEuler methodmultistep schemecoupled Markovian forward backward stochastic differential equations

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Ordinary differential equations and systems with randomness (34F05) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical solutions to stochastic differential and integral equations (65C30)

Abstract: In this work, we concern with the high order numerical methods for coupled forward-backward stochastic differential equations (FBSDEs). Based on the FBSDEs theory, we derive two reference ordinary differential equations (ODEs) from the backward SDE, which contain the conditional expectations and their derivatives. Then, our high order multi-step schemes are obtained by carefully approximating the derivatives and the conditional expectations in the reference ODEs. Motivated by the local property of the generator of diffusion processes, the Euler method is used to solve the forward SDE, however, it is noticed that the numerical solution of the backward SDE is still of high order accuracy. Such results are obviously promising: on one hand, the use of Euler method (for the forward SDE) can dramatically simplifies the entire computational scheme, and on the other hand, one might be only interested in the solution of the backward SDE in many real applications such as option pricing. Several numerical experiments are carried out to demonstrate the effectiveness of the numerical method.

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