Papers › Deep Stochastic Optimization in Finance

Deep Stochastic Optimization in Finance

9 May 2022arXiv:2205.04604archive 2025-07-28

A. Max Reppen, H. Mete Soner, Valentin Tissot-Daguette

This paper outlines, and through stylized examples evaluates a novel and highly effective computational technique in quantitative finance. Empirical Risk Minimization (ERM) and neural networks are key to this approach. Powerful open source optimization libraries allow for efficient implementations of this algorithm making it viable in high-dimensional structures. The free-boundary problems related to American and Bermudan options showcase both the power and the potential difficulties that specific applications may face. The impact of the size of the training data is studied in a simplified Merton type problem. The classical option hedging problem exemplifies the need of market generators or large number of simulations.

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Stochastic Optimization

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