The Compound BSDE Method: A Fully Forward Method for Option Pricing and Optimal Stopping Problems in Finance
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arXiv
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| Natura: | Preprint |
| Pubblicazione: |
2026
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| _version_ | 1866911410595823616 |
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| author | Huang, Zhipeng Oosterlee, Cornelis W. |
| author_facet | Huang, Zhipeng Oosterlee, Cornelis W. |
| contents | We propose the Compound BSDE method, a fully forward, deep-learning-based approach for solving a broad class of problems in financial mathematics, including optimal stopping. The method is based on a reformulation of option pricing problems in terms of a system of backward stochastic differential equations (BSDEs), which offers a new perspective on the numerical treatment of compound options and optimal stopping problems such as Bermudan option pricing. Building on the classical deep BSDE method for a single BSDE, we develop an algorithm for compound BSDEs and establish its convergence properties. In particular, we derive an a posteriori error estimate for the proposed method. Numerical experiments demonstrate the accuracy and computational efficiency of the approach, and illustrate its effectiveness for high-dimensional option pricing and optimal stopping problems. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2601_18634 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | The Compound BSDE Method: A Fully Forward Method for Option Pricing and Optimal Stopping Problems in Finance Huang, Zhipeng Oosterlee, Cornelis W. Computational Finance Numerical Analysis Pricing of Securities 65C30, 91G20, 91G60, 68T07 We propose the Compound BSDE method, a fully forward, deep-learning-based approach for solving a broad class of problems in financial mathematics, including optimal stopping. The method is based on a reformulation of option pricing problems in terms of a system of backward stochastic differential equations (BSDEs), which offers a new perspective on the numerical treatment of compound options and optimal stopping problems such as Bermudan option pricing. Building on the classical deep BSDE method for a single BSDE, we develop an algorithm for compound BSDEs and establish its convergence properties. In particular, we derive an a posteriori error estimate for the proposed method. Numerical experiments demonstrate the accuracy and computational efficiency of the approach, and illustrate its effectiveness for high-dimensional option pricing and optimal stopping problems. |
| title | The Compound BSDE Method: A Fully Forward Method for Option Pricing and Optimal Stopping Problems in Finance |
| topic | Computational Finance Numerical Analysis Pricing of Securities 65C30, 91G20, 91G60, 68T07 |
| url | https://arxiv.org/abs/2601.18634 |