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arXiv · 2008.01241

Pricing Options Under Rough Volatility with Backward SPDEs

Christian Bayer·Jinniao Qiu·Yao Yao
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Abstract

In this paper, we study the option pricing problems for rough volatility models. As the framework is non-Markovian, the value function for a European option is not deterministic; rather, it is random and satisfies a backward stochastic partial differential equation (BSPDE). The existence and uniqueness of weak solution is proved for general nonlinear BSPDEs with unbounded random leading coefficients whose connections with certain forward-backward stochastic differential equations are derived as well. These BSPDEs are then used to approximate American option prices. A deep leaning-based method is also investigated for the numerical approximations to such BSPDEs and associated non-Markovian pricing problems. Finally, the examples of rough Bergomi type are numerically computed for both European and American options.

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Christian Bayer, Jinniao Qiu, Yao Yao. 2020-08-03. Pricing Options Under Rough Volatility with Backward SPDEs. https://arxiv.org/abs/2008.01241

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