On the Robustness of the Snell envelope
DEL MORAL, Pierre
Advanced Learning Evolutionary Algorithms [ALEA]
Institut de Mathématiques de Bordeaux [IMB]
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Advanced Learning Evolutionary Algorithms [ALEA]
Institut de Mathématiques de Bordeaux [IMB]
DEL MORAL, Pierre
Advanced Learning Evolutionary Algorithms [ALEA]
Institut de Mathématiques de Bordeaux [IMB]
< Reduce
Advanced Learning Evolutionary Algorithms [ALEA]
Institut de Mathématiques de Bordeaux [IMB]
Language
en
Article de revue
This item was published in
SIAM Journal on Financial Mathematics. 2011, vol. 2, p. 951-997
Society for Industrial and Applied Mathematics
English Abstract
We analyze the robustness properties of the Snell envelope backward evolution equation for the discrete time optimal stopping problem. We consider a series of approximation schemes, including cut-off type approximations, ...Read more >
We analyze the robustness properties of the Snell envelope backward evolution equation for the discrete time optimal stopping problem. We consider a series of approximation schemes, including cut-off type approximations, Euler discretization schemes, interpolation models, quantization tree models, and the Stochastic Mesh method of Broadie-Glasserman. In each situation, we provide non asymptotic convergence estimates, including Lp-mean error bounds and exponential concentration inequalities. We deduce these estimates from a single and general robustness property of Snell envelope semigroups. In particular, this analysis allows us to recover existing convergence results for the quantization tree method and to improve significantly the rates of convergence obtained for the Stochastic Mesh estimator of Broadie-Glasserman. In the second part of the article, we propose a new approach using a genealogical tree approximation of the reference Markov process in terms of a neutral type genetic model. In contrast to Broadie-Glasserman Monte Carlo models, the computational cost of this new stochastic particle approximation is linear in the number of sampled points. Some simulations results are provided and confirm the interest of this new algorithm.Read less <
English Keywords
Snell envelope
optimal stopping
American option pricing
genealogical trees
interacting particle model
Origin
Hal imported