Sequential design for optimal stopping problems
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Publication:2941479
DOI10.1137/140980089zbMATH Open1320.91154arXiv1309.3832OpenAlexW3099636734MaRDI QIDQ2941479FDOQ2941479
Authors: Robert B. Gramacy, Michael Ludkovski 
Publication date: 28 August 2015
Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)
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.
Full work available at URL: https://arxiv.org/abs/1309.3832
Recommendations
Derivative securities (option pricing, hedging, etc.) (91G20) Sequential statistical design (62L05) Numerical methods (including Monte Carlo methods) (91G60) Stopping times; optimal stopping problems; gambling theory (60G40)
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Cited In (16)
- Discrete-type approximations for non-Markovian optimal stopping problems. II
- American options under stochastic volatility: control variates, maturity randomization \& multiscale asymptotics
- Deep learning for ranking response surfaces with applications to optimal stopping problems
- Sequential design for ranking response surfaces
- Selection of order of observation in optimal stopping problems
- Structured Policies for a Sequential Design Problem with General Distributions
- Generalized probabilistic bisection for stochastic root finding
- Simulation-based Value-at-Risk for nonlinear portfolios
- Optimal market-making strategies under synchronised order arrivals with deep neural networks
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- Evaluating Gaussian process metamodels and sequential designs for noisy level set estimation
- Deep learning for limit order books
- A Nonintrusive Stratified Resampler for Regression Monte Carlo: Application to Solving Nonlinear Equations
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