Numerical simulation of BSDEs using empirical regression methods: theory and practice

Emmanuel Gobet (1) , Jean-Philippe Lemor (2)

1 LMC - IMAG - Laboratoire de Modélisation et Calcul
2 CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique

This article deals with the numerical resolution of backward stochastic differential equations. Firstly, we consider a rather general case where the filtration is generated by a Brownian motion and a Poisson random measure. We provide a simulation algorithm based on iterative regressions on function bases, which coefficients are evaluated using Monte Carlo simulations. We state fully explicit error bounds. Secondly, restricting to the case of a Brownian filtration, we consider reflected BSDEs and adapt the previous algorithm to that situation. The complexity of the algorithm is very competitive and allows us to treat numerical results in dimension 10.

Domaines: Probabilités [math.PR]

Emmanuel Gobet, Jean-Philippe Lemor. Numerical simulation of BSDEs using empirical regression methods: theory and practice. 2005. ⟨hal-00291199⟩