On the rates of convergence of simulation-based optimization algorithms for optimal stopping problems

DOI10.1214/10-AAP692zbMATH Open1234.60043MaRDI QIDQ627243FDOQ627243

Authors D. Belomestny 

Publication date 21 February 2011

Published in The Annals of Applied Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0909.3570

zbMATH Keywords

empirical processesoptimal stoppingexponential inequalities\(\delta \)-entropy with bracketingsimulation-based algorithms

Mathematics Subject Classification ID

Discrete-time Markov processes on general state spaces (60J05) Stopping times; optimal stopping problems; gambling theory (60G40) Financial applications of other theories (91G80)

Abstract: In this paper we study simulation based optimization algorithms for solving discrete time optimal stopping problems. This type of algorithms became popular among practioneers working in the area of quantitative finance. Using large deviation theory for the increments of empirical processes, we derive optimal convergence rates and show that they can not be improved in general. The rates derived provide a guide to the choice of the number of simulated paths needed in optimization step, which is crucial for the good performance of any simulation based optimization algorithm. Finally, we present a numerical example of solving optimal stopping problem arising in option pricing that illustrates our theoretical findings.

Recommendations

• Solving optimal stopping problems via empirical dual optimization
• On the convergence from discrete to continuous time in an optimal stopping problem.
• Simulation-based optimization—convergence analysis and statistical inference
• Multilevel simulation based policy iteration for optimal stopping -- convergence and complexity
• Limit Theorems for Simulation-Based Optimization via Random Search

Cites Work

• scientific article; zbMATH DE number 5016447 (Why is no real title available?)
• scientific article; zbMATH DE number 1999206 (Why is no real title available?)
• scientific article; zbMATH DE number 893887 (Why is no real title available?)
• scientific article; zbMATH DE number 1420699 (Why is no real title available?)
• A dynamic look-ahead Monte Carlo algorithm for pricing Bermudan options
• An analysis of a least squares regression method for American option pricing
• Asymptotic Behavior of Optimal Solutions in Stochastic Programming
• Convergence and biases of Monte Carlo estimates of American option prices using a parametric exercise rule
• Monte Carlo algorithms for optimal stopping and statistical learning
• On the rate of convergence of optimal solutions of Monte Carlo approximations of stochastic programs
• Pricing American-style securities using simulation
• Pricing of high-dimensional American options by neural networks
• Smooth discrimination analysis
• The Valuation of American Options on Multiple Assets
• Uniform Central Limit Theorems
• Valuation of the early-exercise price for options using simulations and nonparametric regression
• Valuing American options by simulation: a simple least-squares approach

Cited In (9)

• Deep neural network expressivity for optimal stopping problems
• Title not available (Why is no real title available?)
• Solving optimal stopping problems via empirical dual optimization
• Randomized Optimal Stopping Algorithms and Their Convergence Analysis
• Pricing American options by exercise rate optimization
• Solving high-dimensional optimal stopping problems using deep learning
• Deep optimal stopping
• A deep learning method for pricing high-dimensional American-style options via state-space partition
• On the consistency of regression-based Monte Carlo methods for pricing Bermudan options in case of estimated financial models

This page was built for publication: On the rates of convergence of simulation-based optimization algorithms for optimal stopping problems

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q627243)