Deep Learning for Constrained Utility Maximisation

Ashley Davey () and Harry Zheng ()
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Ashley Davey: Imperial College
Harry Zheng: Imperial College

Methodology and Computing in Applied Probability, 2022, vol. 24, issue 2, 661-692

Abstract: Abstract This paper proposes two algorithms for solving stochastic control problems with deep learning, with a focus on the utility maximisation problem. The first algorithm solves Markovian problems via the Hamilton Jacobi Bellman (HJB) equation. We solve this highly nonlinear partial differential equation (PDE) with a second order backward stochastic differential equation (2BSDE) formulation. The convex structure of the problem allows us to describe a dual problem that can either verify the original primal approach or bypass some of the complexity. The second algorithm utilises the full power of the duality method to solve non-Markovian problems, which are often beyond the scope of stochastic control solvers in the existing literature. We solve an adjoint BSDE that satisfies the dual optimality conditions. We apply these algorithms to problems with power, log and non-HARA utilities in the Black-Scholes, the Heston stochastic volatility, and path dependent volatility models. Numerical experiments show highly accurate results with low computational cost, supporting our proposed algorithms.

Keywords: Stochastic control; Deep learning; Primal and dual BSDEs; HJB equation; Utility maximisation; 93E20; 91G80; 90C46; 49M29 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11009-021-09912-3

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