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A forward scheme for backward SDEs

Christian Bender and Robert Denk ()

Stochastic Processes and their Applications, 2007, vol. 117, issue 12, 1793-1812

Abstract: We introduce a forward scheme for simulating backward SDEs. Compared to existing schemes, ours avoids high order nestings of conditional expectations backwards in time. In this way the error, when approximating the conditional expectation, depending on the time partition, is significantly reduced. Besides this generic result, we present an implementable algorithm and prove its convergence. Finally, we demonstrate the strength of the new algorithm by solving a financial problem numerically.

Keywords: BSDE; Numerics; Monte; Carlo; simulation; Finance (search for similar items in EconPapers)
Date: 2007
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