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

• URL: http://arxiv.org/abs/2001.11247v2
• Date: Fri, 8 Jan 2021 14:55:16 GMT
• Title: Deep combinatorial optimisation for optimal stopping time problems : application to swing options pricing
• Authors: Thomas Deschatre and Joseph Mikael
• Abstract summary: A new method for computation control based on neural networks and using randomisation of discrete random variables is proposed and applied to optimal stopping time problems. The proposed algorithm succeeds in pricing high dimensional American and swing options in a reasonable time, which is not possible with classical algorithms.
• Score: 0.0
• License: http://arxiv.org/licenses/nonexclusive-distrib/1.0/
• 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.

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