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A Forward Scheme for Backward SDEs

Please always quote using this URN:urn:nbn:de:0296-matheon-2709
  • We introduce a forward scheme to simulate backward SDEs. Compared to existing schemes, we avoid high order nestings of conditional expectations backwards in time. In this way the error, when approximating the conditional expectation, in dependence of the time partition is significantly reduced. Besides this generic result, we present an implementable algorithm and provide an error analysis for it. Finally, we demonstrate the strength of the new algorithm by solving some financial problems numerically.

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Metadaten
Author:Christian Bender, Robert Denk
URN:urn:nbn:de:0296-matheon-2709
Referee:Peter Imkeller
Document Type:Preprint, Research Center Matheon
Language:English
Date of first Publication:2005/02/12
Release Date:2005/10/18
Tag:
Institute:Weierstraß-Institut für Angewandte Analysis und Stochastik (WIAS)
MSC-Classification:65-XX NUMERICAL ANALYSIS / 65Cxx Probabilistic methods, simulation and stochastic differential equations (For theoretical aspects, see 68U20 and 60H35) / 65C05 Monte Carlo methods
65-XX NUMERICAL ANALYSIS / 65Cxx Probabilistic methods, simulation and stochastic differential equations (For theoretical aspects, see 68U20 and 60H35) / 65C30 Stochastic differential and integral equations
Preprint Number:294
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