Quantization based recursive importance sampling

Frikha, Noufel; Sagna, Abass

doi:10.1515/mcma-2012-0011

Cited by 5 publications

(4 citation statements)

References 18 publications

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“…of φ(p, W) based on linearly interpolated Euler-Maruyama approximations (X ξ,W l ,2 l s ) s∈[0,T ] with 2 l timesteps of the solution (X ξ,W s ) s∈[0,T ] of the SDE in (41), and (iv) it holds for all p = (t, ξ) ∈ P that…”

Section: Multilevel Monte Carlo Approximations For Parametric Stochas...mentioning

confidence: 99%

Learning the random variables in Monte Carlo simulations with stochastic gradient descent: Machine learning for parametric PDEs and financial derivative pricing

Becker¹,

Jentzen²,

Müller³

et al. 2022

Preprint

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Section: Multilevel Monte Carlo Approximations For Parametric Stochas...mentioning

confidence: 99%

Learning the random variables in Monte Carlo simulations with stochastic gradient descent: Machine learning for parametric PDEs and financial derivative pricing

Becker¹,

Jentzen²,

Müller³

et al. 2022

Preprint

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“…A similar idea combining (vector or functional) optimal quantization with Newton-Raphson zero search procedure is used in [8] in a variance reduction context as an alternative and robust method to simulation based recursive importance sampling procedure to estimate the optimal change of measure. Furthermore, the convergence of the modified Newton-Raphson algorithm to the optimal quantizer is shown in the framework of [8] to be bounded by the quantization error. However, the tools used to show it do not apply directly in our context and the proof of the convergence of our modified Newton algorithm to an optimal quantizer remains an open question.…”

Section: Computing Marginal Quantizers With Newton-raphson Algorithmmentioning

confidence: 99%

“…We want now to define the recursive marginal quantization ofX t 1 . Owing to Equation (8) and given that the previous marginalX 0 has already be quantized, we replaceX 0 by X Γ 0 0 , then, we set X t 1 := E 0 ( X Γ 0 0 , Z 1 ) and consider the induced distortion…”

Section: Introductionmentioning

confidence: 99%

Recursive Marginal Quantization of the Euler Scheme of a Diffusion Process

Pagès

Sagna

2015

Applied Mathematical Finance

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We propose a new approach to quantize the marginals of the discrete Euler diffusion process. The method is built recursively and involves the conditional distribution of the marginals of the discrete Euler process. Analytically, the method raises several questions like the analysis of the induced quadratic quantization error between the marginals of the Euler process and the proposed quantizations. We show in particular that at every discretization step t k of the Euler scheme, this error is bounded by the cumulative quantization errors induced by the Euler operator, from times t 0 = 0 to time t k . For numerics, we restrict our analysis to the one dimensional setting and show how to compute the optimal grids using a Newton-Raphson algorithm. We then propose a closed formula for the companion weights and the transition probabilities associated to the proposed quantizations. This allows us to quantize in particular diffusion processes in local volatility models by reducing dramatically the computational complexity of the search of optimal quantizers while increasing their computational precision with respect to the algorithms commonly proposed in this framework. Numerical tests are carried out for the Brownian motion and for the pricing of European options in a local volatility model. A comparison with the Monte Carlo simulations shows that the proposed method may sometimes be more efficient (w.r.t. both computational precision and time complexity) than the Monte Carlo method.

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“…Next we illustrate a link between the LRV strategy and quantization methods (cf., e.g., Altmayer et al., 2014; Dereich et al., 2013; Frikha & Sagna, 2012; Müller‐Gronbach & Ritter, 2013; Pagès, 1998; Pagès, 2015; Pagès et al., 2004; Pagès & Printems, 2003, 2005; Pham et al., 2005; Rudd et al., 2017). Quantization methods are concerned with approximating a continuously distributed random variable by a random variable with a finite image.…”

Section: Introductionmentioning

confidence: 99%

Learning the random variables in Monte Carlo simulations with stochastic gradient descent: Machine learning for parametric PDEs and financial derivative pricing

Becker,

Jentzen,

Müller

et al. 2023

Mathematical Finance

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In financial engineering, prices of financial products are computed approximately many times each trading day with (slightly) different parameters in each calculation. In many financial models such prices can be approximated by means of Monte Carlo (MC) simulations. To obtain a good approximation the MC sample size usually needs to be considerably large resulting in a long computing time to obtain a single approximation. A natural deep learning approach to reduce the computation time when new prices need to be calculated as quickly as possible would be to train an artificial neural network (ANN) to learn the function which maps parameters of the model and of the financial product to the price of the financial product. However, empirically it turns out that this approach leads to approximations with unacceptably high errors, in particular when the error is measured in the ‐norm, and it seems that ANNs are not capable to closely approximate prices of financial products in dependence on the model and product parameters in real life applications. This is not entirely surprising given the high‐dimensional nature of the problem and the fact that it has recently been proved for a large class of algorithms, including the deep learning approach outlined above, that such methods are in general not capable to overcome the curse of dimensionality for such approximation problems in the ‐norm. In this article we introduce a new numerical approximation strategy for parametric approximation problems including the parametric financial pricing problems described above and we illustrate by means of several numerical experiments that the introduced approximation strategy achieves a very high accuracy for a variety of high‐dimensional parametric approximation problems, even in the ‐norm. A central aspect of the approximation strategy proposed in this article is to combine MC algorithms with machine learning techniques to, roughly speaking, learn the random variables (LRV) in MC simulations. In other words, we employ stochastic gradient descent (SGD) optimization methods not to train parameters of standard ANNs but instead to learn random variables appearing in MC approximations. In that sense, the proposed LRV strategy has strong links to Quasi‐Monte Carlo (QMC) methods as well as to the field of algorithm learning. Our numerical simulations strongly indicate that the LRV strategy might indeed be capable to overcome the curse of dimensionality in the ‐norm in several cases where the standard deep learning approach has been proven not to be able to do so. This is not a contradiction to the established lower bounds mentioned above because this new LRV strategy is outside of the class of algorithms for which lower bounds have been established in the scientific literature. The proposed LRV strategy is of general nature and not only restricted to the parametric financial pricing problems described above, but applicable to a large class of approximation problems. In this article we numerically test the LRV strategy in the case of the pricing of European call options in the Black‐Scholes model with one underlying asset, in the case of the pricing of European worst‐of basket put options in the Black‐Scholes model with three underlying assets, in the case of the pricing of European average put options in the Black‐Scholes model with three underlying assets and knock‐in barriers, as well as in the case of stochastic Lorentz equations. For these examples the LRV strategy produces highly convincing numerical results when compared with standard MC simulations, QMC simulations using Sobol sequences, SGD‐trained shallow ANNs, and SGD‐trained deep ANNs.

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Quantization based recursive importance sampling

Cited by 5 publications

References 18 publications

Learning the random variables in Monte Carlo simulations with stochastic gradient descent: Machine learning for parametric PDEs and financial derivative pricing

Learning the random variables in Monte Carlo simulations with stochastic gradient descent: Machine learning for parametric PDEs and financial derivative pricing

Recursive Marginal Quantization of the Euler Scheme of a Diffusion Process

Learning the random variables in Monte Carlo simulations with stochastic gradient descent: Machine learning for parametric PDEs and financial derivative pricing

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