The Measure Preserving Martingale Sinkhorn Algorithm

Benjamin Joseph, Gregoire Loeper and Jan Obloj

Papers from arXiv.org

Abstract: We contribute to the recent studies of the so-called Bass martingale. Backhoff-Veraguas et al. (2020) showed it is the solution to the martingale Benamou-Brenier (mBB) problem, i.e., among all martingales with prescribed initial and terminal distributions it is the one closest to the Brownian motion. We link it with semimartingale optimal transport and deduce an alternative way to derive the dual formulation recently obtained in Backhoff-Veraguas et al. (2023). We then consider computational methods to compute the Bass martingale. The dual formulation of the transport problem leads to an iterative scheme that mirrors to the celebrated Sinkhorn algorithm for entropic optimal transport. We call it the measure preserving martingale Sinkhorn (MPMS) algorithm. We prove that in any dimension, each step of the algorithm improves the value of the dual problem, which implies its convergence. Our MPMS algorithm is equivalent to the fixed-point method of Conze and Henry-Labordere (2021), studied in Acciaio et al. (2023), and performs very well on a range of examples, including real market data.

Date: 2023-10, Revised 2024-05
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