Unbiased simulation of stochastic differential equations

DOI10.1214/17-AAP1281MaRDI QIDQ1704137zbMATH OpenFDO

Authors Pierre Henry-Labordère, Xiaolu Tan, Nizar Touzi

Publication date 8 March 2018

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

Full work available at URL https://arxiv.org/abs/1504.06107, https://projecteuclid.org/euclid.aoap/1513328702

zbMATH Keywords

linear parabolic PDEsregime switching diffusionunbiased simulation of SDEs

Mathematics Subject Classification ID

Second-order parabolic equations (35K10) Stochastic calculus of variations and the Malliavin calculus (60H07) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Monte Carlo methods (65C05) Numerical solutions to stochastic differential and integral equations (65C30)

Abstract: We propose an unbiased Monte-Carlo estimator for $mathbbE[g(X_{t_1},cdots,X_{t_n})]$, where $X$ is a diffusion process defined by a multi-dimensional stochastic differential equation (SDE). The main idea is to start instead from a well-chosen simulatable SDE whose coefficients are updated at independent exponential times. Such a simulatable process can be viewed as a regime-switching SDE, or as a branching diffusion process with one single living particle at all times. In order to compensate for the change of the coefficients of the SDE, our main representation result relies on the automatic differentiation technique induced by Bismu-Elworthy-Li formula from Malliavin calculus, as exploited by Fourni'e et al.(1999) for the simulation of the Greeks in financial applications. In particular, this algorithm can be considered as a variation of the (infinite variance) estimator obtained in Bally and Kohatsu-Higa [Section 6.1](2014) as an application of the parametrix method.

Review text

The authors consider the process \(X_t\) defined as a unique strong solution of the multidimensional SDE \[ dX_t=\mu(t,X_t)dt+\sigma(t,X_t)dW_t, \] with \(X_0=x_0\), \(W_t\) being a \(d\)-dimensional Brownian motion, \(\mu:[0,T]\times \mathbb{R}^d\to \mathbb{R}^d\) and \(\sigma:[0,T]\times \mathbb{R}^d\to M^d\) mean and diffusion coefficients. The main focus is on the Monte Carlo approximation of the expectation \(V_0=E[g(X_{t_1},\dots,X_{t_n})]\) for some function \(G:\mathbb{R}^{d\times n}\to \mathbb{R}\) and a discrete grid \(0<t_1<\dots<t_n=T\). The suggested estimator is unbiased. The main idea is to use the Euler scheme solution as a solution to a regime switching SDE with some well-chosen coefficients. In order to compensate for the change of the coefficients of the SDE, a weight function obtained by the automatic differentiation technique induced by the Bismut-Elworthy-Li formula from Malliavin calculus is introduced. Some numerical examples are reported.

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Cited in

(18)

• Efficient estimation and filtering for multivariate jump-diffusions
• A generic construction for high order approximation schemes of semigroups using random grids
• Unbiased estimation using a class of diffusion processes
• Probability density function of SDEs with unbounded and path-dependent drift coefficient
• Second order probabilistic parametrix method for unbiased simulation of stochastic differential equations
• Branching diffusion representation for nonlinear Cauchy problems and Monte Carlo approximation
• Integration by parts formula for killed processes: a point of view from approximation theory
• Unbiased simulation method with the Poisson kernel method for stochastic differential equations with reflection
• Unbiased estimation with square root convergence for SDE models
• Operator splitting around Euler-Maruyama scheme and high order discretization of heat kernels
• Exact simulation for multivariate Itô diffusions
• An unbiased Itô type stochastic representation for transport PDEs: a toy example
• Probabilistic representation of integration by parts formulae for some stochastic volatility models with unbounded drift
• Unbiased simulation of stochastic differential equations using parametrix expansions
• Unbiased Monte Carlo estimate of stochastic differential equations expectations
• A Stochastic Interpretation of the Parametrix Method
• Deep Picard iteration for high-dimensional nonlinear PDEs
• Unbiased simulation of Asian options

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