Deep signature FBSDE algorithm

DOI10.3934/NACO.2022028MaRDI QIDQ6164091zbMATHFDO

Authors

Publication date 26 July 2023

Published in Numerical Algebra, Control and Optimization (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2108.10504

zbMATH Keywords

option pricingsignaturerecurrent neural networkforward-backward stochastic differential equations

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical solutions to stochastic differential and integral equations (65C30)

Abstract: We propose a deep signature/log-signature FBSDE algorithm to solve forward-backward stochastic differential equations (FBSDEs) with state and path dependent features. By incorporating the deep signature/log-signature transformation into the recurrent neural network (RNN) model, our algorithm shortens the training time, improves the accuracy, and extends the time horizon comparing to methods in the existing literature. Moreover, our algorithms can be applied to a wide range of applications such as state and path dependent option pricing involving high-frequency data, model ambiguity, and stochastic games, which are linked to parabolic partial differential equations (PDEs), and path-dependent PDEs (PPDEs). Lastly, we also derive the convergence analysis of the deep signature/log-signature FBSDE algorithm.

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Cited in

(2)

• A deep learning approach to the probabilistic numerical solution of path-dependent partial differential equations
• Deep signature algorithm for multidimensional path-dependent options

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