Time discretization and quantization methods for optimal multiple switching problem

Paul Gassiat (1) , Idris Kharroubi (2) , Huyen Pham (1, 3)

1 LPMA - Laboratoire de Probabilités et Modèles Aléatoires
2 CEREMADE - CEntre de REcherches en MAthématiques de la DEcision
3 CREST - Centre de Recherche en Économie et Statistique

In this paper, we study probabilistic numerical methods based on optimal quantization algorithms for computing the solution to optimal multiple switching problems with regime-dependent state process. We first consider a discrete-time approximation of the optimal switching problem, and analyze its rate of convergence. The error is of order $\frac{1}{2} - \eps$, $\eps$ $>$ $0$, and of order $1\over 2$ when the switching costs do not depend on the state process. We next propose quantization numerical schemes for the space discretization of the discrete-time Euler state process. A Markovian quantization approach relying on the optimal quantization of the normal distribution arising in the Euler scheme is analyzed. In the particular case of uncontrolled state process, we describe an alternative marginal quantization method, which extends the recursive algorithm for optimal stopping problems as in Bally-Pagès (2004). A priori $L^p$-error estimates are stated in terms of quantization errors. Finally, some numerical tests are performed for an optimal switching problem with two regimes.

Domaines: Probabilités [math.PR]

Paul Gassiat, Idris Kharroubi, Huyen Pham. Time discretization and quantization methods for optimal multiple switching problem. 2011. ⟨hal-00626258⟩