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Article Dans Une Revue European Journal of Operational Research Année : 2022

Moving average options: Machine learning and Gauss-Hermite quadrature for a double non-Markovian problem

Résumé

Evaluating moving average options is a tough computational challenge for the energy and commodity mar-ket as the payo˙ of the option depends on the prices of a certain underlying observed on a moving window so, when a long window is considered, the pricing problem becomes high dimensional. We present an eÿ-cient method for pricing Bermudan style moving average options, based on Gaussian Process Regression and Gauss-Hermite quadrature, thus named GPR-GHQ. Specifically, the proposed algorithm proceeds backward in time and, at each time-step, the continuation value is computed only in a few points by using Gauss-Hermite quadrature, and then it is learned through Gaussian Process Regression. We test the proposed approach in the Black-Scholes model, where the GPR-GHQ method is made even more eÿcient by exploiting the positive homogeneity of the continuation value, which allows one to reduce the problem size. Positive homogeneity is also exploited to develop a binomial Markov chain, which is able to deal eÿciently with medium-long windows. Secondly, we test GPR-GHQ in the Clewlow-Strickland model, the reference framework for modeling prices of energy commodities. Finally, we consider a challenging problem which involves double non-Markovian feature, that is the rough-Bergomi model. In this case, the pricing problem is even harder since the whole history of the volatility process impacts the future distribution of the process. The manuscript includes a numerical investigation, which displays that GPR-GHQ is very accurate and it is able to handle options with a very long window, thus overcoming the problem of high dimensionality.

Dates et versions

hal-03810106 , version 1 (11-10-2022)

Identifiants

Citer

Ludovic Goudenège, Andrea Molent, Antonino Zanette. Moving average options: Machine learning and Gauss-Hermite quadrature for a double non-Markovian problem. European Journal of Operational Research, 2022, 303 (2), pp.958-974. ⟨10.1016/j.ejor.2022.03.002⟩. ⟨hal-03810106⟩
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