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Control Variate Method for Deep BSDE Solver Using Weak Approximation

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  • Yoshifumi Tsuchida

    (Asset Management One Co., Ltd.)

Abstract

The paper develops a new deep learning based scheme for solving high-dimensional nonlinear forward-backward stochastic differential equations (FBSDE) and associated partial differential equations. Firstly, the original BSDE is split into the linear dominant BSDE part and the nonlinear residual BSDE part. Then the linear BSDE part is approximated with high accuracy using a weak approximation technique. To approximate the nonlinear BSDE part, Deep BSDE solver is applied with asymptotic expansions which work as control variates. A sharp error estimate provides how the new scheme improves the original Deep BSDE method. Numerical experiments for high-dimensional nonlinear models show the validity and the effectiveness of the new scheme in financial application.

Suggested Citation

  • Yoshifumi Tsuchida, 2023. "Control Variate Method for Deep BSDE Solver Using Weak Approximation," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(2), pages 273-296, June.
    • Handle: RePEc:kap:apfinm:v:30:y:2023:i:2:d:10.1007_s10690-022-09374-8
    DOI: 10.1007/s10690-022-09374-8
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    References listed on IDEAS

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    1. Masaaki Fujii & Akihiko Takahashi & Masayuki Takahashi, 2017. "Asymptotic Expansion as Prior Knowledge in Deep Learning Method for high dimensional BSDEs," Papers 1710.07030, arXiv.org, revised Mar 2019.
    2. Akihiko Takahashi & Toshihiro Yamada, 2015. "An Asymptotic Expansion of Forward-Backward SDEs with a Perturbed Driver," CARF F-Series CARF-F-363, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Riu Naito & Toshihiro Yamada, 2020. "An acceleration scheme for deep learning-based BSDE solver using weak expansions," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 1-12, June.
    4. Akihiko Takahashi & Yoshifumi Tsuchida & Toshihiro Yamada, 2021. "A new efficient approximation scheme for solving high-dimensional semilinear PDEs: control variate method for Deep BSDE solver," CARF F-Series CARF-F-504, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Jan 2022.
    5. Toshihiro Yamada & Kenta Yamamoto, 2020. "A second-order discretization with Malliavin weight and Quasi-Monte Carlo method for option pricing," Quantitative Finance, Taylor & Francis Journals, vol. 20(11), pages 1825-1837, November.
    6. Akihiko Takahashi & Toshihiro Yamada, 2015. "An asymptotic expansion of forward-backward SDEs with a perturbed driver," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-29.
    7. N. El Karoui & S. Peng & M. C. Quenez, 1997. "Backward Stochastic Differential Equations in Finance," Mathematical Finance, Wiley Blackwell, vol. 7(1), pages 1-71, January.
    8. 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.
    9. Masaaki Fujii & Akihiko Takahashi, 2015. "Asymptotic Expansion for Forward-Backward SDEs," CARF F-Series CARF-F-372, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    10. Akihiko Takahashi & Toshiaki Watanabe, 2015. "An Asymptotic Expansion of Forward-Backward SDEs with a Perturbed Driver ," CIRJE F-Series CIRJE-F-976, CIRJE, Faculty of Economics, University of Tokyo.
    11. Masaaki Fujii & Akihiko Takahashi & Masayuki Takahashi, 2019. "Asymptotic Expansion as Prior Knowledge in Deep Learning Method for High dimensional BSDEs," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(3), pages 391-408, September.
    12. Yuga Iguchi & Riu Naito & Yusuke Okano & Akihiko Takahashi & Toshihiro Yamada, 2021. "Deep Asymptotic Expansion: Application to Financial Mathematics," CIRJE F-Series CIRJE-F-1178, CIRJE, Faculty of Economics, University of Tokyo.
    13. Masaaki Fujii & Akihiko Takahashi, 2015. "Asymptotic Expansion for Forward-Backward SDEs with Jumps," CIRJE F-Series CIRJE-F-993, CIRJE, Faculty of Economics, University of Tokyo.
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