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A forward scheme for backward SDEs. (English) Zbl 1131.60054
A forward numerical scheme for simulating backward SDEs avoiding high order nestings of conditional expectations backwards in time is introduced. The authors present an implementable algorithm. Mean square convergence of related numerical approximations is studied under the usual assumptions. Finally, as an example, a financial problem is numerically solved. Their algorithm shows several improvements compared to previously reported ones (e.g., error reduction, higher efficiency, absence of explosions, etc.).

60H10 Stochastic ordinary differential equations (aspects of stochastic analysis)
65C30 Numerical solutions to stochastic differential and integral equations
65C05 Monte Carlo methods
91G80 Financial applications of other theories
Full Text: DOI
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