Unbiased Deep Solvers for Linear Parametric PDEs

Marc Sabate Vidales, David Šiška and Lukasz Szpruch

Applied Mathematical Finance, 2021, vol. 28, issue 4, 299-329

Abstract: We develop several deep learning algorithms for approximating families of parametric PDE solutions. The proposed algorithms approximate solutions together with their gradients, which in the context of mathematical finance means that the derivative prices and hedging strategies are computed simultaneously. Having approximated the gradient of the solution, one can combine it with a Monte Carlo simulation to remove the bias in the deep network approximation of the PDE solution (derivative price). This is achieved by leveraging the Martingale Representation Theorem and combining the Monte Carlo simulation with the neural network. The resulting algorithm is robust with respect to the quality of the neural network approximation and consequently can be used as a black box in case only limited a-priori information about the underlying problem is available. We believe this is important as neural network-based algorithms often require fair amount of tuning to produce satisfactory results. The methods are empirically shown to work for high-dimensional problems (e.g., 100 dimensions). We provide diagnostics that shed light on appropriate network architectures.

Date: 2021
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DOI: 10.1080/1350486X.2022.2030773

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