Deep combinatorial optimisation for optimal stopping time problems: application to swing options pricing

Thomas Deschatre and Joseph Mikael

Papers from arXiv.org

Abstract: A new method for stochastic control based on neural networks and using randomisation of discrete random variables is proposed and applied to optimal stopping time problems. The method models directly the policy and does not need the derivation of a dynamic programming principle nor a backward stochastic differential equation. Unlike continuous optimization where automatic differentiation is used directly, we propose a likelihood ratio method for gradient computation. Numerical tests are done on the pricing of American and swing options. The proposed algorithm succeeds in pricing high dimensional American and swing options in a reasonable computation time, which is not possible with classical algorithms.

Date: 2020-01, Revised 2021-01
New Economics Papers: this item is included in nep-cmp and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2001.11247

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