Reducing variance in the numerical solution of BSDEs

Samu Alanko, Marco Avellaneda

Research output: Contribution to journalArticle

Abstract

Numerical methods based on time discretization and estimation of conditional expectations for solving backward stochastic differential equations (BSDEs) have been the object of considerable research, particularly in view of the applications to finance. We introduce and implement a simple control variate technique to reduce the simulation error of the conditional expectation estimates in BSDE methods. These modifications increase the accuracy of the existing algorithms without additional computational cost.

Original languageEnglish (US)
Pages (from-to)135-138
Number of pages4
JournalComptes Rendus Mathematique
Volume351
Issue number3-4
DOIs
StatePublished - Feb 2013

Fingerprint

Backward Stochastic Differential Equation
Conditional Expectation
Numerical Solution
Time Discretization
Finance
Computational Cost
Numerical Methods
Estimate
Simulation
Object

ASJC Scopus subject areas

  • Mathematics(all)

Cite this

Reducing variance in the numerical solution of BSDEs. / Alanko, Samu; Avellaneda, Marco.

In: Comptes Rendus Mathematique, Vol. 351, No. 3-4, 02.2013, p. 135-138.

Research output: Contribution to journalArticle

@article{464ad768e4fc4390a6ed51e02a773b63,
title = "Reducing variance in the numerical solution of BSDEs",
abstract = "Numerical methods based on time discretization and estimation of conditional expectations for solving backward stochastic differential equations (BSDEs) have been the object of considerable research, particularly in view of the applications to finance. We introduce and implement a simple control variate technique to reduce the simulation error of the conditional expectation estimates in BSDE methods. These modifications increase the accuracy of the existing algorithms without additional computational cost.",
author = "Samu Alanko and Marco Avellaneda",
year = "2013",
month = "2",
doi = "10.1016/j.crma.2013.02.010",
language = "English (US)",
volume = "351",
pages = "135--138",
journal = "Comptes Rendus Mathematique",
issn = "1631-073X",
publisher = "Elsevier Masson",
number = "3-4",

}

TY - JOUR

T1 - Reducing variance in the numerical solution of BSDEs

AU - Alanko, Samu

AU - Avellaneda, Marco

PY - 2013/2

Y1 - 2013/2

N2 - Numerical methods based on time discretization and estimation of conditional expectations for solving backward stochastic differential equations (BSDEs) have been the object of considerable research, particularly in view of the applications to finance. We introduce and implement a simple control variate technique to reduce the simulation error of the conditional expectation estimates in BSDE methods. These modifications increase the accuracy of the existing algorithms without additional computational cost.

AB - Numerical methods based on time discretization and estimation of conditional expectations for solving backward stochastic differential equations (BSDEs) have been the object of considerable research, particularly in view of the applications to finance. We introduce and implement a simple control variate technique to reduce the simulation error of the conditional expectation estimates in BSDE methods. These modifications increase the accuracy of the existing algorithms without additional computational cost.

UR - http://www.scopus.com/inward/record.url?scp=84875907206&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84875907206&partnerID=8YFLogxK

U2 - 10.1016/j.crma.2013.02.010

DO - 10.1016/j.crma.2013.02.010

M3 - Article

AN - SCOPUS:84875907206

VL - 351

SP - 135

EP - 138

JO - Comptes Rendus Mathematique

JF - Comptes Rendus Mathematique

SN - 1631-073X

IS - 3-4

ER -