Optimal Transport Filtering with Particle Reweighing in Finance

Raphael Douady () and Shohruh Miryusupov ()
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Shohruh Miryusupov: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: We propose an optimal transportation approach to price European options under the Stein-Stein stochastic volatility model by using the flow that optimally transports the set of particles from the prior to a posterior distribution. We also show how to direct the flow to a rarely visited areas of the state space by using a particle method (a mutation and a reweighing mechanism). We demonstrate the efficiency of our approach on a simple example for which a closed form formula is available. This method shows lower variance and bias compared to other filtering schemes recently developed in the signal-processing literature, including particle filter techniques.

Keywords: optimal transport; Monge-Kantorovich; stochastic volatility; Particle methods; op-; tion pricing; Stein model; importance sampling; variance reduction; particle filter; Monte Carlo; simulations; sequential Monte Carlo (search for similar items in EconPapers)
Date: 2017-09-05
Note: View the original document on HAL open archive server: https://hal.science/hal-01581903
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Citations: View citations in EconPapers (2)

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Working Paper: Optimal Transport Filtering with Particle Reweighing in Finance (2017)
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