Optimal transportation under controlled stochastic dynamics

DOI10.1214/12-AOP797zbMATH Open1283.60097arXiv1310.0939OpenAlexW2003977788MaRDI QIDQ378799FDOQ378799

Authors: Xiaolu Tan, Nizar Touzi 

Publication date: 12 November 2013

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

Abstract: We consider an extension of the Monge-Kantorovitch optimal transportation problem. The mass is transported along a continuous semimartingale, and the cost of transportation depends on the drift and the diffusion coefficients of the continuous semimartingale. The optimal transportation problem minimizes the cost among all continuous semimartingales with given initial and terminal distributions. Our first main result is an extension of the Kantorovitch duality to this context. We also suggest a finite-difference scheme combined with the gradient projection algorithm to approximate the dual value. We prove the convergence of the scheme, and we derive a rate of convergence. We finally provide an application in the context of financial mathematics, which originally motivated our extension of the Monge-Kantorovitch problem. Namely, we implement our scheme to approximate no-arbitrage bounds on the prices of exotic options given the implied volatility curve of some maturity.

Full work available at URL: https://arxiv.org/abs/1310.0939

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zbMATH Keywords

viscosity solutionsKantorovich dualitygradient projection algorithmmass transportation

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Numerical problems in dynamical systems (65P99) Numerical methods for mathematical programming, optimization and variational techniques (65K99)

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