Discrete-time approximation and Monte-Carlo simulation of backward stochastic differential equations

Bruno Bouchard and Nizar Touzi

Stochastic Processes and their Applications, 2004, vol. 111, issue 2, 175-206

Abstract: We suggest a discrete-time approximation for decoupled forward-backward stochastic differential equations. The Lp norm of the error is shown to be of the order of the time step. Given a simulation-based estimator of the conditional expectation operator, we then suggest a backward simulation scheme, and we study the induced Lp error. This estimate is more investigated in the context of the Malliavin approach for the approximation of conditional expectations. Extensions to the reflected case are also considered.

Keywords: Monte-Carlo; methods; for; (reflected); forward-backward; SDEs; Malliavin; calculus; Regression; estimation (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (119)

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