Monte Carlo methods via a dual approach for some discrete time stochastic control problems
AbstractWe consider a class of discrete time stochastic control problems motivated by some financial applications. We use a pathwise stochastic control approach to provide a dual formulation of the problem. This enables us to develop a numerical technique for obtaining an estimate of the value function which improves on purely regression based methods. We demonstrate the competitiveness of the method on the example of a gas storage valuation problem.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1112.4351.
Date of creation: Dec 2011
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
- NEP-CMP-2012-01-03 (Computational Economics)
- NEP-ORE-2012-01-03 (Operations Research)
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- Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
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- Denis Belomestny & Anastasia Kolodko & John Schoenmakers, 2009. "Regression methods for stochastic control problems and their convergence analysis," SFB 649 Discussion Papers SFB649DP2009-026, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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