Volatility uncertainty quantification in a stochastic control problem applied to energy

Abstract : This work designs a methodology to quantify the uncertainty of a volatility parameter in a stochastic control problem arising in energy management. The difficulty lies in the non-linearity of the underlying scalar Hamilton-Jacobi-Bellman equation. We proceed by decomposing the unknown solution on a Hermite polynomial basis (of the unknown volatility), whose different coefficients are solution to a system of non-linear PDEs of the same kind. Numerical tests show that computing the first basis elements may be enough to get an accurate approximation with respect to the uncertain volatility parameter. We experiment the methodology in the context of swing contract (energy contract with flexibility in purchasing energy power), this allows to introduce the concept of Uncertainty Value Adjustment (UVA), whose aim is to value the risk of misspecification of the volatility model.
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Dernière modification le : mercredi 23 janvier 2019 - 10:29:27
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  • HAL Id : hal-01784095, version 1

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Francisco Bernal, Emmanuel Gobet, Jacques Printems. Volatility uncertainty quantification in a stochastic control problem applied to energy. 2018. 〈hal-01784095〉

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