Efficient pricing and hedging of high-dimensional American options using deep recurrent networks
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Abstract: We propose a deep Recurrent neural network (RNN) framework for computing prices and deltas of American options in high dimensions. Our proposed framework uses two deep RNNs, where one network learns the price and the other learns the delta of the option for each timestep. Our proposed framework yields prices and deltas for the entire spacetime, not only at a given point (e.g. t = 0). The computational cost of the proposed approach is linear in time, which improves on the quadratic time seen for feedforward networks that price American options. The computational memory cost of our method is constant in memory, which is an improvement over the linear memory costs seen in feedforward networks. Our numerical simulations demonstrate these contributions, and show that the proposed deep RNN framework is computationally more efficient than traditional feedforward neural network frameworks in time and memory.
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Cited in
(10)- A new deep neural network algorithm for multiple stopping with applications in options pricing
- Deep neural network framework based on backward stochastic differential equations for pricing and hedging American options in high dimensions
- A deep learning method for pricing high-dimensional American-style options via state-space partition
- Deep impulse control: application to interest rate intervention
- Solving American option optimal control problems in financial markets using a novel neural network
- Option pricing in the Heston model with physics inspired neural networks
- Gradient-enhanced sparse Hermite polynomial expansions for pricing and hedging high-dimensional American options
- Simultaneous upper and lower bounds of American-style option prices with hedging via neural networks
- Deep learning of optimal exercise boundaries for American options
- Joint arbitrage-free smoothing of American call and put options surfaces
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