Dynamic programming for optimal stopping via pseudo-regression

DOI10.1080/14697688.2020.1780299MaRDI QIDQ5014168zbMATH OpenOpenAlexFDO

Authors Christian Bayer, Martin Redmann, John Schoenmakers

Publication date 1 December 2021

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1808.04725

zbMATH Keywords

linear regressionoption pricingMonte Carlo simulationbasket optionsBermudan options

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Dynamic programming (90C39) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: We introduce new variants of classical regression-based algorithms for optimal stopping problems based on computation of regression coefficients by Monte Carlo approximation of the corresponding $L^2$ inner products instead of the least-squares error functional. Coupled with new proposals for simulation of the underlying samples, we call the approach "pseudo regression". A detailed convergence analysis is provided and it is shown that the approach asymptotically leads to less computational cost for a pre-specified error tolerance, hence to lower complexity. The method is justified by numerical examples.

Recommendations

• Optimal stopping via reinforced regression
• On regression-based stopping times
• Monte Carlo algorithms for optimal stopping and statistical learning
• Solving optimal stopping problems via empirical dual optimization
• scientific article; zbMATH DE number 1054896

Cites work

• scientific article; zbMATH DE number 3538599 (Why is no real title available?)
• scientific article; zbMATH DE number 1999206 (Why is no real title available?)
• scientific article; zbMATH DE number 2051217 (Why is no real title available?)
• A QUANTIZATION TREE METHOD FOR PRICING AND HEDGING MULTIDIMENSIONAL AMERICAN OPTIONS
• A distribution-free theory of nonparametric regression
• Advanced simulation-based methods for optimal stopping and control. With applications in finance
• Optimal stopping of McKean-Vlasov diffusions via regression on particle systems
• Quantitative error estimates for a least-squares Monte Carlo algorithm for American option pricing
• SDE based regression for linear random PDEs
• Semitractability of optimal stopping problems via a weighted stochastic mesh algorithm
• Solving linear parabolic rough partial differential equations
• Valuing American options by simulation: a simple least-squares approach

Cited in

(6)

• Multilevel simulation based policy iteration for optimal stopping -- convergence and complexity
• Sequential design for optimal stopping problems
• Optimal stopping via reinforced regression
• Primal-Dual Regression Approach for Markov Decision Processes with General State and Action Spaces
• On the optimization of pit stop strategies via dynamic programming
• Optimal stopping of McKean-Vlasov diffusions via regression on particle systems

This page was built for publication: Dynamic programming for optimal stopping via pseudo-regression

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5014168)