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Perturbative Expansion Technique for Non-linear FBSDEs with Interacting Particle Method

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  • Masaaki Fujii
  • Akihiko Takahashi
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    Abstract

    In this paper, we propose an efficient Monte Carlo implementation of non-linear FBSDEs as a system of interacting particles inspired by the ideas of branching diffusion method. It will be particularly useful to investigate large and complex systems, and hence it is a good complement of our previous work presenting an analytical perturbation procedure for generic non-linear FBSDEs. There appear multiple species of particles, where the first one follows the diffusion of the original underlying state, and the others the Malliavin derivatives with a grading structure. The number of branching points are capped by the order of perturbation, which is expected to make the scheme less numerically intensive. The proposed method can be applied to semi-linear problems, such as American and Bermudan options, Credit Value Adjustment (CVA), and even fully non-linear issues, such as the optimal portfolio problems in incomplete and/or constrained markets, feedbacks from large investors, and also the analysis of various risk measures.

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    File URL: http://arxiv.org/pdf/1204.2638
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1204.2638.

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    Date of creation: Apr 2012
    Date of revision: Apr 2012
    Handle: RePEc:arx:papers:1204.2638

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    Web page: http://arxiv.org/

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    Cited by:
    1. Akihiko Takahashi & Toshihiro Yamada, 2013. "On an Asymptotic Expansion of Forward-Backward SDEs with a Perturbed Driver," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-326, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Oct 2013.
    2. Kenichiro Shiraya & Akihiko Takahashi, 2013. "Pricing Basket Options under Local Stochastic Volatility with Jumps," CARF F-Series, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo CARF-F-336, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised May 2014.
    3. Akihiko Takahashi & Toshihiro Yamada, 2013. "On an Asymptotic Expansion of Forward-Backward SDEs with a Perturbed Driver," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-902, CIRJE, Faculty of Economics, University of Tokyo.
    4. Kenichiro Shiraya & Akihiko Takahashi, 2014. "Pricing Basket Options under Local Stochastic Volatility with Jumps," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-913, CIRJE, Faculty of Economics, University of Tokyo.

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