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A posteriori error bounds for the Uncertain Volatility Model

Author

Listed:
  • Lokman A Abbas-Turki

    (LPSM)

  • Chassagneux Jean-Fran{c c}ois

    (ENSAE Paris)

  • Jean-Philippe Lemor

    (LPSM)

  • Gr{'e}goire Loeper

    (LPSM)

  • Simon Sananes

    (LPSM)

Abstract

We develop a posteriori primal-dual bounds for numerical approximations of European option prices in the Uncertain Volatility Model. Given a smooth candidate approximation of the value function, a feedback control induced by its Hessian yields a primal lower bound. On the dual side, we derive a representation based on a matrix-valued Gamma field, which provides an upper bound through a nonnegative Hamiltonian penalty. We further show that, when the dual field is generated by the candidate itself, this upper bound admits an equivalent representation in terms of the residual of the associated Black-Scholes-Barenblatt equation. We then study discrete-time approximations of these primal and dual quantities and quantify the corresponding discretization errors. Finally, we investigate their numerical evaluation for candidates obtained by stochastic policy-gradient and physics-informed neural-network methods, and compare the resulting estimates with a martingale dual approach from the stochastic-control literature. The numerical experiments highlight the importance of derivative accuracy, and in particular of second-order information, for obtaining tight a posteriori bounds.

Suggested Citation

  • Lokman A Abbas-Turki & Chassagneux Jean-Fran{c c}ois & Jean-Philippe Lemor & Gr{'e}goire Loeper & Simon Sananes, 2026. "A posteriori error bounds for the Uncertain Volatility Model," Papers 2610.06495, arXiv.org.
  • Handle: RePEc:arx:papers:2610.06495
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    References listed on IDEAS

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    1. Lokman A Abbas-Turki & Jean-Franc{c}ois Chassagneux & Jean-Philippe Lemor & Gr'egoire Loeper & Simon Sananes, 2026. "Stochastic Policy Gradient Methods in the Uncertain Volatility Model," Papers 2605.06670, arXiv.org, revised Oct 2026.
    2. repec:dau:papers:123456789/5524 is not listed on IDEAS
    3. Ludovic Goudenège & Andrea Molent & Antonino Zanette, 2026. "Leveraging machine learning for high-dimensional option pricing within the uncertain volatility model," Quantitative Finance, Taylor & Francis Journals, vol. 26(3), pages 355-374, March.
    4. Huyên Pham & Xavier Warin & Maximilien Germain, 2021. "Neural networks-based backward scheme for fully nonlinear PDEs," Partial Differential Equations and Applications, Springer, vol. 2(1), pages 1-24, February.
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