English

Pricing high-dimensional Bermudan options with hierarchical tensor formats

Computational Finance 2021-03-09 v2 Computational Engineering, Finance, and Science Numerical Analysis Numerical Analysis

Abstract

An efficient compression technique based on hierarchical tensors for popular option pricing methods is presented. It is shown that the "curse of dimensionality" can be alleviated for the computation of Bermudan option prices with the Monte Carlo least-squares approach as well as the dual martingale method, both using high-dimensional tensorized polynomial expansions. This discretization allows for a simple and computationally cheap evaluation of conditional expectations. Complexity estimates are provided as well as a description of the optimization procedures in the tensor train format. Numerical experiments illustrate the favourable accuracy of the proposed methods. The dynamical programming method yields results comparable to recent Neural Network based methods.

Keywords

Cite

@article{arxiv.2103.01934,
  title  = {Pricing high-dimensional Bermudan options with hierarchical tensor formats},
  author = {Christian Bayer and Martin Eigel and Leon Sallandt and Philipp Trunschke},
  journal= {arXiv preprint arXiv:2103.01934},
  year   = {2021}
}

Comments

26 pages, 3 figures, 5 tables, added affiliations and update acknowledgements

R2 v1 2026-06-23T23:40:33.508Z