Sequential design for optimal stopping problems
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Publication:2941479
Abstract: We propose a new approach to solve optimal stopping problems via simulation. Working within the backward dynamic programming/Snell envelope framework, we augment the methodology of Longstaff-Schwartz that focuses on approximating the stopping strategy. Namely, we introduce adaptive generation of the stochastic grids anchoring the simulated sample paths of the underlying state process. This allows for active learning of the classifiers partitioning the state space into the continuation and stopping regions. To this end, we examine sequential design schemes that adaptively place new design points close to the stopping boundaries. We then discuss dynamic regression algorithms that can implement such recursive estimation and local refinement of the classifiers. The new algorithm is illustrated with a variety of numerical experiments, showing that an order of magnitude savings in terms of design size can be achieved. We also compare with existing benchmarks in the context of pricing multi-dimensional Bermudan options.
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Cites work
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Cited in
(16)- scientific article; zbMATH DE number 1361711 (Why is no real title available?)
- Evaluating Gaussian process metamodels and sequential designs for noisy level set estimation
- American options under stochastic volatility: control variates, maturity randomization \& multiscale asymptotics
- Structured Policies for a Sequential Design Problem with General Distributions
- Deep learning for ranking response surfaces with applications to optimal stopping problems
- Optimal market-making strategies under synchronised order arrivals with deep neural networks
- Generalized probabilistic bisection for stochastic root finding
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- Deep learning for limit order books
- A Nonintrusive Stratified Resampler for Regression Monte Carlo: Application to Solving Nonlinear Equations
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