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Neural networks-based algorithms for stochastic control and PDEs in finance

Author

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  • Maximilien Germain

    (LPSM (UMR_8001) - Laboratoire de Probabilités, Statistique et Modélisation - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique - UPCité - Université Paris Cité, EDF R&D - EDF R&D - EDF - EDF, EDF - EDF, EDF R&D OSIRIS - Optimisation, Simulation, Risque et Statistiques pour les Marchés de l’Energie - EDF R&D - EDF R&D - EDF - EDF)

  • Huyên Pham

    (LPSM (UMR_8001) - Laboratoire de Probabilités, Statistique et Modélisation - UPD7 - Université Paris Diderot - Paris 7 - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique, FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CREST - EDF R&D - EDF R&D - EDF - EDF)

  • Xavier Warin

    (EDF R&D - EDF R&D - EDF - EDF, FiME Lab - Laboratoire de Finance des Marchés d'Energie - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CREST - EDF R&D - EDF R&D - EDF - EDF, EDF - EDF, EDF R&D OSIRIS - Optimisation, Simulation, Risque et Statistiques pour les Marchés de l’Energie - EDF R&D - EDF R&D - EDF - EDF)

Abstract

This paper presents machine learning techniques and deep reinforcement learningbased algorithms for the efficient resolution of nonlinear partial differential equations and dynamic optimization problems arising in investment decisions and derivative pricing in financial engineering. We survey recent results in the literature, present new developments, notably in the fully nonlinear case, and compare the different schemes illustrated by numerical tests on various financial applications. We conclude by highlighting some future research directions.

Suggested Citation

  • Maximilien Germain & Huyên Pham & Xavier Warin, 2021. "Neural networks-based algorithms for stochastic control and PDEs in finance ," Post-Print hal-03115503, HAL.
    • Handle: RePEc:hal:journl:hal-03115503
    DOI: 10.1017/9781009028943.023
    Note: View the original document on HAL open archive server: https://hal.science/hal-03115503v2
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    References listed on IDEAS

    as
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    8. repec:dau:papers:123456789/5524 is not listed on IDEAS
    9. Stefan Kremsner & Alexander Steinicke & Michaela Szolgyenyi, 2020. "A deep neural network algorithm for semilinear elliptic PDEs with applications in insurance mathematics," Papers 2010.15757, arXiv.org, revised Dec 2020.
    10. Maximilien Germain & Huyên Pham & Xavier Warin, 2021. "Rate of convergence for particle approximation of PDEs in Wasserstein space ," Working Papers hal-03154021, HAL.
    11. Masaaki Fujii & Akihiko Takahashi & Masayuki Takahashi, 2019. "Asymptotic Expansion as Prior Knowledge in Deep Learning Method for high dimensional BSDEs (Forthcoming in Asia-Pacific Financial Markets)," CARF F-Series CARF-F-456, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    12. Jiequn Han & Ruimeng Hu, 2021. "Recurrent Neural Networks for Stochastic Control Problems with Delay," Papers 2101.01385, arXiv.org, revised Jun 2021.
    13. Idris Kharroubi & Thomas Lim & Xavier Warin, 2020. "Discretization and Machine Learning Approximation of BSDEs with a Constraint on the Gains-Process," Papers 2002.02675, arXiv.org.
    14. Maximilien Germain & Huy^en Pham & Xavier Warin, 2021. "Rate of convergence for particle approximation of PDEs in Wasserstein space," Papers 2103.00837, arXiv.org, revised Nov 2021.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Zhu, Yichen & Escobar-Anel, Marcos, 2022. "Polynomial affine approach to HARA utility maximization with applications to OrnsteinUhlenbeck 4/2 models," Applied Mathematics and Computation, Elsevier, vol. 418(C).
    2. Mohamed Hamdouche & Pierre Henry-Labordere & Huyen Pham, 2023. "Policy gradient learning methods for stochastic control with exit time and applications to share repurchase pricing," Papers 2302.07320, arXiv.org.
    3. Jean-Franc{c}ois Chassagneux & Junchao Chen & Noufel Frikha, 2022. "Deep Runge-Kutta schemes for BSDEs," Papers 2212.14372, arXiv.org.
    4. William Lefebvre & Gr'egoire Loeper & Huy^en Pham, 2022. "Differential learning methods for solving fully nonlinear PDEs," Papers 2205.09815, arXiv.org.
    5. Antoine Jacquier & Zan Zuric, 2023. "Random neural networks for rough volatility," Papers 2305.01035, arXiv.org.
    6. Alexandre Roch, 2023. "Optimal Liquidation Through a Limit Order Book: A Neural Network and Simulation Approach," Methodology and Computing in Applied Probability, Springer, vol. 25(1), pages 1-29, March.
    7. Ivan Guo & Nicolas Langren'e & Jiahao Wu, 2023. "Simultaneous upper and lower bounds of American-style option prices with hedging via neural networks," Papers 2302.12439, arXiv.org, revised Nov 2024.
    8. Sebastian Jaimungal, 2022. "Reinforcement learning and stochastic optimisation," Finance and Stochastics, Springer, vol. 26(1), pages 103-129, January.
    9. Carl Remlinger & Joseph Mikael & Romuald Elie, 2022. "Robust Operator Learning to Solve PDE," Working Papers hal-03599726, HAL.
    10. Luca Di Persio & Emanuele Lavagnoli & Marco Patacca, 2022. "Calibrating FBSDEs Driven Models in Finance via NNs," Risks, MDPI, vol. 10(12), pages 1-19, November.
    11. Lukas Gonon, 2022. "Deep neural network expressivity for optimal stopping problems," Papers 2210.10443, arXiv.org.
    12. Lukas Gonon, 2021. "Random feature neural networks learn Black-Scholes type PDEs without curse of dimensionality," Papers 2106.08900, arXiv.org.
    13. Ren'e Carmona & Mathieu Lauri`ere, 2021. "Deep Learning for Mean Field Games and Mean Field Control with Applications to Finance," Papers 2107.04568, arXiv.org.

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