Stochastic algorithmic differentiation of (expectations of) discontinuous functions (indicator functions)

DOI10.1080/00207160.2021.1883593zbMATH Open1499.65005arXiv1811.05741OpenAlexW3128652807MaRDI QIDQ5063446FDOQ5063446

Authors: Christian Fries 

Publication date: 21 March 2022

Published in: International Journal of Computer Mathematics (Search for Journal in Brave)

Abstract: In this paper, we present a method for the accurate estimation of the derivative (aka.~sensitivity) of expectations of functions involving an indicator function by combining a stochastic algorithmic differentiation and a regression. The method is an improvement of the approach presented in [Risk Magazine April 2018]. The finite difference approximation of a partial derivative of a Monte-Carlo integral of a discontinuous function is known to exhibit a high Monte-Carlo error. The issue is evident since the Monte-Carlo approximation of a discontinuous function is just a finite sum of discontinuous functions and as such, not even differentiable. The algorithmic differentiation of a discontinuous function is problematic. A natural approach is to replace the discontinuity by continuous functions. This is equivalent to replacing a path-wise automatic differentiation by a (local) finite difference approximation. We present an improvement (in terms of variance reduction) by decoupling the integration of the Dirac delta and the remaining conditional expectation and estimating the two parts by separate regressions. For the algorithmic differentiation, we derive an operator that can be injected seamlessly - with minimal code changes - into the algorithm resulting in the exact result.

Full work available at URL: https://arxiv.org/abs/1811.05741

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zbMATH Keywords

variance reductionMonte Carlo simulationindicator functionalgorithmic differentiationobject oriented implementationadjoint automatic differentiation

Mathematics Subject Classification ID

Monte Carlo methods (65C05) Numerical differentiation (65D25)

Cites Work

• Stochastic simulation: Algorithms and analysis
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• A new unbiased stochastic derivative estimator for discontinuous sample performances with structural parameters

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