Dual pricing of American options by Wiener chaos expansion

DOI10.1137/16M1102161zbMATH Open1397.62283arXiv1604.03317WikidataQ129972412 ScholiaQ129972412MaRDI QIDQ4579832FDOQ4579832

Authors: Jérôme Lelong 

Publication date: 10 August 2018

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Abstract: In this work, we propose an algorithm to price American options by directly solving the dual minimization problem introduced by Rogers. Our approach relies on approximating the set of uniformly square integrable martingales by a finite dimensional Wiener chaos expansion. Then, we use a sample average approximation technique to efficiently solve the optimization problem. Unlike all the regression based methods, our method can transparently deal with path dependent options without extra computations and a parallel implementation writes easily with very little communication and no centralized work. We test our approach on several multi--dimensional options with up to 40 assets and show the impressive scalability of the parallel implementation.

Full work available at URL: https://arxiv.org/abs/1604.03317

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zbMATH Keywords

stochastic optimizationAmerican optiondualityhigh performance computingWiener chaos expansionsample average approximationSnell envelope

Mathematics Subject Classification ID

Monte Carlo methods (65C05) Derivative securities (option pricing, hedging, etc.) (91G20) Parallel numerical computation (65Y05) Numerical methods (including Monte Carlo methods) (91G60) Stopping times; optimal stopping problems; gambling theory (60G40)

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Cited In (9)

• Machine learning for pricing American options in high-dimensional Markovian and non-Markovian models
• New directions in rough path theory. Abstracts from the workshop held December 6--12, 2020 (online meeting)
• Pricing High-Dimensional Bermudan Options with Hierarchical Tensor Formats
• Pricing Bermudan Options Using Regression Trees/Random Forests
• A general continuous time Markov chain approximation for multi-asset option pricing with systems of correlated diffusions
• Pricing American Options: A Duality Approach
• WIENER CHAOS: A NEW APPROACH TO OPTION HEDGING
• Solving high-dimensional optimal stopping problems using deep learning
• Mean-variance Dynamic Portfolio Allocation with Transaction Costs: A Wiener Chaos Expansion Approach

Uses Software

• PNL

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