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Grégoire Loeper

Publications and source records attributed to Grégoire Loeper.

At least 19 recordsLinked to original sources

Stochastic Policy Gradient Methods in the Uncertain Volatility Model

The multidimensional Uncertain Volatility Model leads to robust option pricing problems under joint volatility and correlation uncertainty. Their numerical resolution quickly becomes challenging because the associated stochastic control problem is high-dimensional. We propose a backward actor-critic stochastic policy-gradient scheme tailored to this setting. The method combines a discrete dynamic programming principle with Proximal Policy Optimization and one-hidden-layer neural-network approximations of both the value function and the control policy. A key ingredient is the policy parameterization: continuous controls are represented through a squashed Gaussian policy built on a $C$-vine representation of correlation matrices, which enforces positive definiteness by construction. Beyond the robust price itself, the spatial gradient of the trained critic provides an approximation of the associated superhedging strategy. We assess the quality of this learned gradient through a dual formulation, which also yields a numerical dual estimate of the price. Numerical experiments on a range of multidimensional derivatives show that the method yields accurate prices, remains computationally efficient, and compares favorably with existing Monte Carlo and machine-learning-based benchmarks for robust pricing in the Uncertain Volatility Model.

q-fin.CP↗

Bridging Schrödinger and Bass: A Semimartingale Optimal Transport Problem with Diffusion Control

We study a semimartingale optimal transport problem interpolating between the Schrödinger bridge and the stretched Brownian motion associated with the Bass solution of the Skorokhod embedding problem. The cost combines an entropy term on the drift with a quadratic penalization of the diffusion coefficient, leading to a stochastic control problem over drift and volatility. We establish a complete duality theory for this problem, despite the lack of coercivity in the diffusion component. In particular, we prove strong duality and dual attainment, and derive an equivalent reduced dual formulation in terms of a variational problem over terminal potentials. Optimal solutions are characterized by a coupled Schrödinger-Bass bridge system, involving a backward heat potential and a transport map given by the gradient of a $β$-convex function. This system interpolates between the classical Schrödinger system and the Bass martingale transport. Our results furnish a unified framework encompassing entropic and martingale optimal transport, and yield a variational foundation for data-driven diffusion models.

math.PR↗

LightSBB-M: Bridging Schrödinger and Bass for Generative Diffusion Modeling

The Schrodinger Bridge and Bass (SBB) formulation, which jointly controls drift and volatility, is an established extension of the classical Schrodinger Bridge (SB). Building on this framework, we introduce LightSBB-M, an algorithm that computes the optimal SBB transport plan in only a few iterations. The method exploits a dual representation of the SBB objective to obtain analytic expressions for the optimal drift and volatility, and it incorporates a tunable parameter beta greater than zero that interpolates between pure drift (the Schrodinger Bridge) and pure volatility (Bass martingale transport). We show that LightSBB-M achieves the lowest 2-Wasserstein distance on synthetic datasets against state-of-the-art SB and diffusion baselines with up to 32 percent improvement. We also illustrate the generative capability of the framework on an unpaired image-to-image translation task (adult to child faces in FFHQ). These findings demonstrate that LightSBB-M provides a scalable, high-fidelity SBB solver that outperforms existing SB and diffusion baselines across both synthetic and real-world generative tasks. The code is available at https://github.com/alexouadi/LightSBB-M.

cs.LG↗

SBBTS: A Unified Schrödinger-Bass Framework for Synthetic Financial Time Series

We study the problem of generating synthetic time series that reproduce both marginal distributions and temporal dynamics, a central challenge in financial machine learning. Existing approaches typically fail to jointly model drift and stochastic volatility, as diffusion-based methods fix the volatility while martingale transport models ignore drift. We introduce the Schrödinger-Bass Bridge for Time Series (SBBTS), a unified framework that extends the Schrödinger-Bass formulation to multi-step time series. The method constructs a diffusion process that jointly calibrates drift and volatility and admits a tractable decomposition into conditional transport problems, enabling efficient learning. Numerical experiments on the Heston model demonstrate that SBBTS accurately recovers stochastic volatility and correlation parameters that prior SchrödingerBridge methods fail to capture. Applied to S&P 500 data, SBBTS-generated synthetic time series consistently improve downstream forecasting performance when used for data augmentation, yielding higher classification accuracy and Sharpe ratio compared to real-data-only training. These results show that SBBTS provides a practical and effective framework for realistic time series generation and data augmentation in financial applications.

cs.LG↗

A PDE Derivation of the Schrödinger--Bass Bridge

This short paper announces the main results of \cite{SBB2026}, where the Schrödinger--Bass Bridge (SBB) problem is introduced and studied in full generality. Here we provide a direct PDE derivation of the SBB system in dimension one, showing how the optimal coupling problem that interpolates between the classical Schrödinger bridge and the Bass martingale transport can be solved explicitly via Legendre transforms and the heat equation. A key insight is that the optimal SBB process is a Stretched Schrödinger Bridge: the composition of a monotone transport map with a Schrödinger bridge. This extends the stretched Brownian motion representation of Bass martingales to the semimartingale setting and provides a unified framework that recovers both the Sinkhorn algorithm (in the limit $β\to \infty$) and the Bass construction (as $β\to 0$). We refer to \cite{SBB2026} for complete proofs, the multidimensional setting, strong duality, dual attainment, and further developments.

math.PR↗

On Stochastic Partial Differential Equations and their applications to Derivative Pricing through a conditional Feynman-Kac formula

The price of a financial derivative can be expressed as an iterated conditional expectation, where the inner term conditions on the future of an auxiliary process. We show that this inner conditional expectation solves an SPDE (a 'conditional Feynman-Kac formula'). The problem requires conditioning on a backward filtration generated by the noise of the auxiliary process and enlarged by its terminal value, leading us to search for a backward Brownian motion here. This adds a source of irregularity to the SPDE which we tackle with new techniques. Lastly, we establish a new class of mixed Monte-Carlo PDE numerical methods.

q-fin.MF↗

The Subtle Interplay between Square-root Impact, Order Imbalance & Volatility II: An Artificial Market Generator

This work extends and complements our previous theoretical paper on the subtle interplay between impact, order flow and volatility. In the present paper, we generate synthetic market data following the specification of that paper and show that the approximations made there are actually justified, which provides quantitative support our conclusion that price volatility can be fully explained by the superposition of correlated metaorders which all impact prices, on average, as a square-root of executed volume. One of the most striking predictions of our model is the structure of the correlation between generalized order flow and returns, which is observed empirically and reproduced using our synthetic market generator. Furthermore, we were able to construct proxy metaorders from our simulated order flow that reproduce the square-root law of market impact, lending further credence to the proposal made in Ref. [2] to measure the impact of real metaorders from tape data (i.e. anonymized trades), which was long thought to be impossible.

q-fin.TR↗

The "double" square-root law: Evidence for the mechanical origin of market impact using Tokyo Stock Exchange data

Understanding the impact of trades on prices is a crucial question for both academic research and industry practice. It is well established that impact follows a square-root impact as a function of traded volume. However, the microscopic origin of such a law remains elusive: empirical studies are particularly challenging due to the anonymity of orders in public data. Indeed, there is ongoing debate about whether price impact has a mechanical origin or whether it is primarily driven by information, as suggested by many economic theories. In this paper, we revisit this question using a very detailed dataset provided by the Japanese stock exchange, containing the trader IDs for all orders sent to the exchange between 2012 and 2018. Our central result is that such a law has in fact microscopic roots and applies already at the level of single child orders, provided one waits long enough for the market to "digest" them. The mesoscopic impact of metaorders arises from a "double" square-root effect: square-root in volume of individual impact, followed by an inverse square-root decay as a function of time. Since market orders are anonymous, we expect and indeed find that these results apply to any market orders, and the impact of synthetic metaorders, reconstructed by scrambling the identity of the issuers, is described by the very same square-root impact law. We conclude that price impact is essentially mechanical, at odds with theories that emphasize the information content of such trades to explain the square-root impact law.

q-fin.TR↗

Generating realistic metaorders from public data

This paper introduces a novel algorithm for generating realistic metaorders from public trade data, addressing a longstanding challenge in price impact research that has traditionally relied on proprietary datasets. Our method effectively recovers all established stylized facts of metaorders impact, such as the Square Root Law, the concave profile during metaorder execution, and the post-execution decay. This algorithm not only overcomes the dependence on proprietary data, a major barrier to research reproducibility, but also enables the creation of larger and more robust datasets that may increase the quality of empirical studies. Our findings strongly suggest that average realized short-term price impact is not due to information revelation (as in the Kyle framework) but has a mechanical origin which could explain the universality of the Square Root Law.

q-fin.TR↗

Entropic Semi-Martingale Optimal Transport

Entropic Optimal Transport (EOT), also referred to as the Schrödinger problem, seeks to find a random processes with prescribed initial/final marginals and with minimal relative entropy with respect to a reference measure. The relative entropy forces the two measures to share the same support and only the drift of the controlled process can be adjusted, the diffusion being imposed by the reference measure. Therefore, at first sight, Semi-Martingale Optimal Transport (SMOT) problems (see [1]) seem out of the scope of applications of Entropic regularization techniques, which are otherwise very attractive from a computational point of view. However, when the process is observed only at discrete times, and become therefore a Markov chain, its relative entropy can remain finite even with variable diffusion coefficients, and discrete semi-martingales can be obtained as solutions of (multi-marginal) EOT problems.Given a (smooth) semi-martingale, the limit of the relative entropy of its time discretizations, scaled by the time step converges to the so-called ``specific relative entropy'', a convex functional of its variance process, similar to those used in SMOT.In this paper we use this observation to build an entropic time discretization of continuous SMOT problems. This allows to compute discrete approximations of solutions to continuous SMOT problems by a multi-marginal Sinkhorn algorithm, without the need of solving the non-linear Hamilton-Jacobi-Bellman pde's associated to the dual problem, as done for example in [1, 2]. We prove a convergence result of the time discrete entropic problem to the continuous time problem, we propose an implementation and provide numerical experiments supporting the theoretical convergence.

math.OC↗

From entropic transport to martingale transport, and applications to model calibration

We propose a discrete time formulation of the semi-martingale optimal transport problem based on multi-marginal entropic transport. This approach offers a new way to formulate and solve numerically the calibration problem proposed by [17], using a multi-marginal extension of Sinkhorn algorithm as in [6, 10, 7]. When the time step goes to zero we recover, as detailed in the companion paper [8], a continuous semi-martingale process, solution to a semi-martingale optimal transport problem, with a cost function involving the so-called 'specific entropy' , introduced in [13], see also [12] and [2].

math.OC↗

From entropic transport to martingale transport, and applications to model calibration

We propose a discrete time formulation of the semi martingale optimal transport problembased on multi-marginal entropic transport. This approach offers a new way to formulate and solve numerically the calibration problem proposed by Guo et al. 2022, using a multi-marginal extension of Sinkhorn algorithm as in Benamou, Carlier, and Nenna 2019; Carlier et al. 2017; Benamou et al. 2019. In the limit when the time step goes to zero we recover, as detailed in the companion paper Benamou et al. 2024, a semi-martingale process, solution to a semi-martingale optimal transport problem, with a cost function involving the so-called specific entropy introduced in Gantert 1991, see also F{ö}llmer 2022 and Backhoff-Veraguas and Unterberger 2023.

math.OC↗

Cleaning the covariance matrix of strongly nonstationary systems with time-independent eigenvalues

We propose a data-driven way to reduce the noise of covariance matrices of nonstationary systems. In the case of stationary systems, asymptotic approaches were proved to converge to the optimal solutions. Such methods produce eigenvalues that are highly dependent on the inputs, as common sense would suggest. Our approach proposes instead to use a set of eigenvalues totally independent from the inputs and that encode the long-term averaging of the influence of the future on present eigenvalues. Such an influence can be the predominant factor in nonstationary systems. Using real and synthetic data, we show that our data-driven method outperforms optimal methods designed for stationary systems for the filtering of both covariance matrix and its inverse, as illustrated by financial portfolio variance minimization, which makes out method generically relevant to many problems of multivariate inference.

stat.AP↗

Differential learning methods for solving fully nonlinear PDEs

We propose machine learning methods for solving fully nonlinear partial differential equations (PDEs) with convex Hamiltonian. Our algorithms are conducted in two steps. First the PDE is rewritten in its dual stochastic control representation form, and the corresponding optimal feedback control is estimated using a neural network. Next, three different methods are presented to approximate the associated value function, i.e., the solution of the initial PDE, on the entire space-time domain of interest. The proposed deep learning algorithms rely on various loss functions obtained either from regression or pathwise versions of the martingale representation and its differential relation, and compute simultaneously the solution and its derivatives. Compared to existing methods, the addition of a differential loss function associated to the gradient, and augmented training sets with Malliavin derivatives of the forward process, yields a better estimation of the PDE's solution derivatives, in particular of the second derivative, which is usually difficult to approximate. Furthermore, we leverage our methods to design algorithms for solving families of PDEs when varying terminal condition (e.g. option payoff in the context of mathematical finance) by means of the class of DeepOnet neural networks aiming to approximate functional operators. Numerical tests illustrate the accuracy of our methods on the resolution of a fully nonlinear PDE associated to the pricing of options with linear market impact, and on the Merton portfolio selection problem.

q-fin.CP↗

Approximate viscosity solutions of path-dependent PDEs and Dupire's vertical differentiability

We introduce a notion of approximate viscosity solution for a class of nonlinear path-dependent PDEs (PPDEs), including the Hamilton-Jacobi-Bellman type equations. Existence, comparaison and stability results are established under fairly general conditions. It is also consistent with smooth solutions when the dimension is less or equal to two, or the non-linearity is concave in the second order space derivative. We finally investigate the regularity (in the sense of Dupire) of the solution to the PPDE.

math.AP↗

Deep Semi-Martingale Optimal Transport

We propose two deep neural network-based methods for solving semi-martingale optimal transport problems. The first method is based on a relaxation/penalization of the terminal constraint, and is solved using deep neural networks. The second method is based on the dual formulation of the problem, which we express as a saddle point problem, and is solved using adversarial networks. Both methods are mesh-free and therefore mitigate the curse of dimensionality. We test the performance and accuracy of our methods on several examples up to dimension 10. We also apply the first algorithm to a portfolio optimization problem where the goal is, given an initial wealth distribution, to find an investment strategy leading to a prescribed terminal wealth distribution.

math.OC↗

A $C^{0,1}$-functional Itô's formula and its applications in mathematical finance

Using Dupire's notion of vertical derivative, we provide a functional (path-dependent) extension of the Itô's formula of Gozzi and Russo (2006) that applies to C^{0,1}-functions of continuous weak Dirichlet processes. It is motivated and illustrated by its applications to the hedging or superhedging problems of path-dependent options in mathematical finance, in particular in the case of model uncertainty

math.PR↗

Portfolio optimization with a prescribed terminal wealth distribution

This paper studies a portfolio allocation problem, where the goal is to prescribe the wealth distribution at the final time. We study this problem with the tools of optimal mass transport. We provide a dual formulation which we solve by a gradient descent algorithm. This involves solving an associated HJB and Fokker--Planck equation by a finite difference method. Numerical examples for various prescribed terminal distributions are given, showing that we can successfully reach attainable targets. We next consider adding consumption during the investment process, to take into account distribution that either not attainable, or sub-optimal.

math.OC↗