Deep neural network framework based on backward stochastic differential equations for pricing and hedging American options in high dimensions
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Publication:5014169
Abstract: We propose a deep neural network framework for computing prices and deltas of American options in high dimensions. The architecture of the framework is a sequence of neural networks, where each network learns the difference of the price functions between adjacent timesteps. We introduce the least squares residual of the associated backward stochastic differential equation as the loss function. Our proposed framework yields prices and deltas on the entire spacetime, not only at a given point. The computational cost of the proposed approach is quadratic in dimension, which addresses the curse of dimensionality issue that state-of-the-art approaches suffer. Our numerical simulations demonstrate these contributions, and show that the proposed neural network framework outperforms state-of-the-art approaches in high dimensions.
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- Efficient pricing and hedging of high-dimensional American options using deep recurrent networks
- An overview on deep learning-based approximation methods for partial differential equations
- Solving American option optimal control problems in financial markets using a novel neural network
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- Learning the random variables in Monte Carlo simulations with stochastic gradient descent: Machine learning for parametric PDEs and financial derivative pricing
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- Option pricing in the Heston model with physics inspired neural networks
- Deep learning algorithms for solving high-dimensional nonlinear backward stochastic differential equations
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- Overcoming the curse of dimensionality in the numerical approximation of backward stochastic differential equations
- Solving high-dimensional optimal stopping problems using deep learning
- A deep learning method for pricing high-dimensional American-style options via state-space partition
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