arXiv subjects

Lukas Gonon

Publications and source records attributed to Lukas Gonon.

At least 37 records · Page 2Linked to original sources

arXiv2024

Fast Deep Hedging with Second-Order Optimization

Hedging exotic options in presence of market frictions is an important risk management task. Deep hedging can solve such hedging problems by training neural network policies in realistic simulated markets. Training these neural networks may be delicate and suffer from slow convergence, particularly for options with long maturities and complex sensitivities to market parameters. To address this, we propose a second-order optimization scheme for deep hedging. We leverage pathwise differentiability to construct a curvature matrix, which we approximate as block-diagonal and Kronecker-factored to efficiently precondition gradients. We evaluate our method on a challenging and practically important problem: hedging a cliquet option on a stock with stochastic volatility by trading in the spot and vanilla options. We find that our second-order scheme can optimize the policy in 1/4 of the number of steps that standard adaptive moment-based optimization takes.

q-fin.RM↗

arXiv2024

Universal randomised signatures for generative time series modelling

Randomised signature has been proposed as a flexible and easily implementable alternative to the well-established path signature. In this article, we employ randomised signature to introduce a generative model for financial time series data in the spirit of reservoir computing. Specifically, we propose a novel Wasserstein-type distance based on discrete-time randomised signatures. This metric on the space of probability measures captures the distance between (conditional) distributions. Its use is justified by our novel universal approximation results for randomised signatures on the space of continuous functions taking the underlying path as an input. We then use our metric as the loss function in a non-adversarial generator model for synthetic time series data based on a reservoir neural stochastic differential equation. We compare the results of our model to benchmarks from the existing literature.

cs.LG↗

arXiv2024

An Overview on Machine Learning Methods for Partial Differential Equations: from Physics Informed Neural Networks to Deep Operator Learning

The approximation of solutions of partial differential equations (PDEs) with numerical algorithms is a central topic in applied mathematics. For many decades, various types of methods for this purpose have been developed and extensively studied. One class of methods which has received a lot of attention in recent years are machine learning-based methods, which typically involve the training of artificial neural networks (ANNs) by means of stochastic gradient descent type optimization methods. While approximation methods for PDEs using ANNs have first been proposed in the 1990s they have only gained wide popularity in the last decade with the rise of deep learning. This article aims to provide an introduction to some of these methods and the mathematical theory on which they are based. We discuss methods such as physics-informed neural networks (PINNs) and deep BSDE methods and consider several operator learning approaches.

math.NA↗

arXiv2024

Detecting asset price bubbles using deep learning

In this paper we employ deep learning techniques to detect financial asset bubbles by using observed call option prices. The proposed algorithm is widely applicable and model-independent. We test the accuracy of our methodology in numerical experiments within a wide range of models and apply it to market data of tech stocks in order to assess if asset price bubbles are present. Under a given condition on the pricing of call options under asset price bubbles, we are able to provide a theoretical foundation of our approach for positive and continuous stochastic asset price processes. When such a condition is not satisfied, we focus on local volatility models. To this purpose, we give a new necessary and sufficient condition for a process with time-dependent local volatility function to be a strict local martingale.

q-fin.MF↗

arXiv2023

Approximation Rates for Deep Calibration of (Rough) Stochastic Volatility Models

We derive quantitative error bounds for deep neural networks (DNNs) approximating option prices on a $d$-dimensional risky asset as functions of the underlying model parameters, payoff parameters and initial conditions. We cover a general class of stochastic volatility models of Markovian nature as well as the rough Bergomi model. In particular, under suitable assumptions we show that option prices can be learned by DNNs up to an arbitrary small error $\varepsilon \in (0,1/2)$ while the network size grows only sub-polynomially in the asset vector dimension $d$ and the reciprocal $\varepsilon^{-1}$ of the accuracy. Hence, the approximation does not suffer from the curse of dimensionality. As quantitative approximation results for DNNs applicable in our setting are formulated for functions on compact domains, we first consider the case of the asset price restricted to a compact set, then we extend these results to the general case by using convergence arguments for the option prices.

q-fin.MF↗

arXiv2023

Infinite-dimensional reservoir computing

Reservoir computing approximation and generalization bounds are proved for a new concept class of input/output systems that extends the so-called generalized Barron functionals to a dynamic context. This new class is characterized by the readouts with a certain integral representation built on infinite-dimensional state-space systems. It is shown that this class is very rich and possesses useful features and universal approximation properties. The reservoir architectures used for the approximation and estimation of elements in the new class are randomly generated echo state networks with either linear or ReLU activation functions. Their readouts are built using randomly generated neural networks in which only the output layer is trained (extreme learning machines or random feature neural networks). The results in the paper yield a fully implementable recurrent neural network-based learning algorithm with provable convergence guarantees that do not suffer from the curse of dimensionality.

cs.LG↗

arXiv2023

The necessity of depth for artificial neural networks to approximate certain classes of smooth and bounded functions without the curse of dimensionality

In this article we study high-dimensional approximation capacities of shallow and deep artificial neural networks (ANNs) with the rectified linear unit (ReLU) activation. In particular, it is a key contribution of this work to reveal that for all $a,b\in\mathbb{R}$ with $b-a\geq 7$ we have that the functions $[a,b]^d\ni x=(x_1,\dots,x_d)\mapsto\prod_{i=1}^d x_i\in\mathbb{R}$ for $d\in\mathbb{N}$ as well as the functions $[a,b]^d\ni x =(x_1,\dots, x_d)\mapsto\sin(\prod_{i=1}^d x_i) \in \mathbb{R} $ for $ d \in \mathbb{N} $ can neither be approximated without the curse of dimensionality by means of shallow ANNs nor insufficiently deep ANNs with ReLU activation but can be approximated without the curse of dimensionality by sufficiently deep ANNs with ReLU activation. We show that the product functions and the sine of the product functions are polynomially tractable approximation problems among the approximating class of deep ReLU ANNs with the number of hidden layers being allowed to grow in the dimension $ d \in \mathbb{N} $. We establish the above outlined statements not only for the product functions and the sine of the product functions but also for other classes of target functions, in particular, for classes of uniformly globally bounded $ C^{ \infty } $-functions with compact support on any $[a,b]^d$ with $a\in\mathbb{R}$, $b\in(a,\infty)$. Roughly speaking, in this work we lay open that simple approximation problems such as approximating the sine or cosine of products cannot be solved in standard implementation frameworks by shallow or insufficiently deep ANNs with ReLU activation in polynomial time, but can be approximated by sufficiently deep ReLU ANNs with the number of parameters growing at most polynomially.

math.NA↗

arXiv2022

Deep neural network expressivity for optimal stopping problems

This article studies deep neural network expression rates for optimal stopping problems of discrete-time Markov processes on high-dimensional state spaces. A general framework is established in which the value function and continuation value of an optimal stopping problem can be approximated with error at most $\varepsilon$ by a deep ReLU neural network of size at most $κd^{\mathfrak{q}} \varepsilon^{-\mathfrak{r}}$. The constants $κ,\mathfrak{q},\mathfrak{r} \geq 0$ do not depend on the dimension $d$ of the state space or the approximation accuracy $\varepsilon$. This proves that deep neural networks do not suffer from the curse of dimensionality when employed to solve optimal stopping problems. The framework covers, for example, exponential Lévy models, discrete diffusion processes and their running minima and maxima. These results mathematically justify the use of deep neural networks for numerically solving optimal stopping problems and pricing American options in high dimensions.

math.PR↗

arXiv2022

Deep ReLU neural networks overcome the curse of dimensionality for partial integrodifferential equations

Deep neural networks (DNNs) with ReLU activation function are proved to be able to express viscosity solutions of linear partial integrodifferental equations (PIDEs) on state spaces of possibly high dimension $d$. Admissible PIDEs comprise Kolmogorov equations for high-dimensional diffusion, advection, and for pure jump Lévy processes. We prove for such PIDEs arising from a class of jump-diffusions on $\mathbb{R}^d$ that for any suitable measure $μ^d$ on $\mathbb{R}^d$ there exist constants $C,{\mathfrak{p}},{\mathfrak{q}}>0$ such that for every $\varepsilon \in (0,1]$ and for every $d\in \mathbb{N}$ the DNN $L^2(μ^d)$-expression error of viscosity solutions of the PIDE is of size $\varepsilon$ with DNN size bounded by $Cd^{\mathfrak{p}}\varepsilon^{-\mathfrak{q}}$. In particular, the constant $C>0$ is independent of $d\in \mathbb{N}$ and of $\varepsilon \in (0,1]$ and depends only on the coefficients in the PIDE and the measure used to quantify the error. This establishes that ReLU DNNs can break the curse of dimensionality (CoD for short) for viscosity solutions of linear, possibly degenerate PIDEs corresponding to suitable Markovian jump-diffusion processes. As a consequence of the employed techniques we also obtain that expectations of a large class of path-dependent functionals of the underlying jump-diffusion processes can be expressed without the CoD.

math.NA↗

arXiv2021

Neural network approximation for superhedging prices

This article examines neural network-based approximations for the superhedging price process of a contingent claim in a discrete time market model. First we prove that the $α$-quantile hedging price converges to the superhedging price at time $0$ for $α$ tending to $1$, and show that the $α$-quantile hedging price can be approximated by a neural network-based price. This provides a neural network-based approximation for the superhedging price at time $0$ and also the superhedging strategy up to maturity. To obtain the superhedging price process for $t>0$, by using the Doob decomposition it is sufficient to determine the process of consumption. We show that it can be approximated by the essential supremum over a set of neural networks. Finally, we present numerical results.

q-fin.MF↗

arXiv2021

Deep ReLU Network Expression Rates for Option Prices in high-dimensional, exponential Lévy models

We study the expression rates of deep neural networks (DNNs for short) for option prices written on baskets of $d$ risky assets, whose log-returns are modelled by a multivariate Lévy process with general correlation structure of jumps. We establish sufficient conditions on the characteristic triplet of the Lévy process $X$ that ensure $\varepsilon$ error of DNN expressed option prices with DNNs of size that grows polynomially with respect to $\mathcal{O}(\varepsilon^{-1})$, and with constants implied in $\mathcal{O}(\cdot)$ which grow polynomially with respect $d$, thereby overcoming the curse of dimensionality and justifying the use of DNNs in financial modelling of large baskets in markets with jumps. In addition, we exploit parabolic smoothing of Kolmogorov partial integrodifferential equations for certain multivariate Lévy processes to present alternative architectures of ReLU DNNs that provide $\varepsilon$ expression error in DNN size $\mathcal{O}(|\log(\varepsilon)|^a)$ with exponent $a \sim d$, however, with constants implied in $\mathcal{O}(\cdot)$ growing exponentially with respect to $d$. Under stronger, dimension-uniform non-degeneracy conditions on the Lévy symbol, we obtain algebraic expression rates of option prices in exponential Lévy models which are free from the curse of dimensionality. In this case the ReLU DNN expression rates of prices depend on certain sparsity conditions on the characteristic Lévy triplet. We indicate several consequences and possible extensions of the present results.

math.NA↗

arXiv2021

Random feature neural networks learn Black-Scholes type PDEs without curse of dimensionality

This article investigates the use of random feature neural networks for learning Kolmogorov partial (integro-)differential equations associated to Black-Scholes and more general exponential Lévy models. Random feature neural networks are single-hidden-layer feedforward neural networks in which only the output weights are trainable. This makes training particularly simple, but (a priori) reduces expressivity. Interestingly, this is not the case for Black-Scholes type PDEs, as we show here. We derive bounds for the prediction error of random neural networks for learning sufficiently non-degenerate Black-Scholes type models. A full error analysis is provided and it is shown that the derived bounds do not suffer from the curse of dimensionality. We also investigate an application of these results to basket options and validate the bounds numerically. These results prove that neural networks are able to \textit{learn} solutions to Black-Scholes type PDEs without the curse of dimensionality. In addition, this provides an example of a relevant learning problem in which random feature neural networks are provably efficient.

cs.LG↗

arXiv2021

Approximation Bounds for Random Neural Networks and Reservoir Systems

This work studies approximation based on single-hidden-layer feedforward and recurrent neural networks with randomly generated internal weights. These methods, in which only the last layer of weights and a few hyperparameters are optimized, have been successfully applied in a wide range of static and dynamic learning problems. Despite the popularity of this approach in empirical tasks, important theoretical questions regarding the relation between the unknown function, the weight distribution, and the approximation rate have remained open. In this work it is proved that, as long as the unknown function, functional, or dynamical system is sufficiently regular, it is possible to draw the internal weights of the random (recurrent) neural network from a generic distribution (not depending on the unknown object) and quantify the error in terms of the number of neurons and the hyperparameters. In particular, this proves that echo state networks with randomly generated weights are capable of approximating a wide class of dynamical systems arbitrarily well and thus provides the first mathematical explanation for their empirically observed success at learning dynamical systems.

math.PR↗

arXiv2020

Fading memory echo state networks are universal

Echo state networks (ESNs) have been recently proved to be universal approximants for input/output systems with respect to various $L ^p$-type criteria. When $1\leq p< \infty$, only $p$-integrability hypotheses need to be imposed, while in the case $p=\infty$ a uniform boundedness hypotheses on the inputs is required. This note shows that, in the last case, a universal family of ESNs can be constructed that contains exclusively elements that have the echo state and the fading memory properties. This conclusion could not be drawn with the results and methods available so far in the literature.

cs.NE↗

arXiv2020

Discrete-time signatures and randomness in reservoir computing

A new explanation of geometric nature of the reservoir computing phenomenon is presented. Reservoir computing is understood in the literature as the possibility of approximating input/output systems with randomly chosen recurrent neural systems and a trained linear readout layer. Light is shed on this phenomenon by constructing what is called strongly universal reservoir systems as random projections of a family of state-space systems that generate Volterra series expansions. This procedure yields a state-affine reservoir system with randomly generated coefficients in a dimension that is logarithmically reduced with respect to the original system. This reservoir system is able to approximate any element in the fading memory filters class just by training a different linear readout for each different filter. Explicit expressions for the probability distributions needed in the generation of the projected reservoir system are stated and bounds for the committed approximation error are provided.

cs.NE↗

arXiv2020

Memory and forecasting capacities of nonlinear recurrent networks

The notion of memory capacity, originally introduced for echo state and linear networks with independent inputs, is generalized to nonlinear recurrent networks with stationary but dependent inputs. The presence of dependence in the inputs makes natural the introduction of the network forecasting capacity, that measures the possibility of forecasting time series values using network states. Generic bounds for memory and forecasting capacities are formulated in terms of the number of neurons of the nonlinear recurrent network and the autocovariance function or the spectral density of the input. These bounds generalize well-known estimates in the literature to a dependent inputs setup. Finally, for the particular case of linear recurrent networks with independent inputs it is proved that the memory capacity is given by the rank of the associated controllability matrix, a fact that has been for a long time assumed to be true without proof by the community.

math.OC↗

arXiv2020

Weak error analysis for stochastic gradient descent optimization algorithms

Stochastic gradient descent (SGD) type optimization schemes are fundamental ingredients in a large number of machine learning based algorithms. In particular, SGD type optimization schemes are frequently employed in applications involving natural language processing, object and face recognition, fraud detection, computational advertisement, and numerical approximations of partial differential equations. In mathematical convergence results for SGD type optimization schemes there are usually two types of error criteria studied in the scientific literature, that is, the error in the strong sense and the error with respect to the objective function. In applications one is often not only interested in the size of the error with respect to the objective function but also in the size of the error with respect to a test function which is possibly different from the objective function. The analysis of the size of this error is the subject of this article. In particular, the main result of this article proves under suitable assumptions that the size of this error decays at the same speed as in the special case where the test function coincides with the objective function.

math.NA↗

arXiv2020

Uniform error estimates for artificial neural network approximations for heat equations

Recently, artificial neural networks (ANNs) in conjunction with stochastic gradient descent optimization methods have been employed to approximately compute solutions of possibly rather high-dimensional partial differential equations (PDEs). Very recently, there have also been a number of rigorous mathematical results in the scientific literature which examine the approximation capabilities of such deep learning based approximation algorithms for PDEs. These mathematical results from the scientific literature prove in part that algorithms based on ANNs are capable of overcoming the curse of dimensionality in the numerical approximation of high-dimensional PDEs. In these mathematical results from the scientific literature usually the error between the solution of the PDE and the approximating ANN is measured in the $L^p$-sense with respect to some $p \in [1,\infty)$ and some probability measure. In many applications it is, however, also important to control the error in a uniform $L^\infty$-sense. The key contribution of the main result of this article is to develop the techniques to obtain error estimates between solutions of PDEs and approximating ANNs in the uniform $L^\infty$-sense. In particular, we prove that the number of parameters of an ANN to uniformly approximate the classical solution of the heat equation in a region $ [a,b]^d $ for a fixed time point $ T \in (0,\infty) $ grows at most polynomially in the dimension $ d \in \mathbb{N} $ and the reciprocal of the approximation precision $ \varepsilon > 0 $. This shows that ANNs can overcome the curse of dimensionality in the numerical approximation of the heat equation when the error is measured in the uniform $L^\infty$-norm.

math.NA↗