AA4 – Energy and Markets

Project

AA4-2

Optimal control in energy markets using rough analysis and deep networks

Project Heads

Christian Bayer, Peter Friz, John Schoenmakers, Vladimir Spokoiny

Project Members

Paul Hager (TU), Paolo Pigato (WIAS) 

Project Duration

01.01.2019 – 31.12.2021

Located at

TU Berlin / WIAS

Description

In this project, we will develop efficient methods for modeling energy price processes and methods for solving related control or decision problems. Followinyg (Bennedsen, 2017), we explore the use of rough pricing models, which have been very successful for modeling equity markets. Due to the lacking Markov property, rough models pose new mathematical challenges for stochastic control. In this area deep learning is playing an increasingly important role. In this respect, a big challenge is the incorporation of deep learning architectures in new methods for optimal stopping, multiple stopping and control problems.

We compute solutions to these control problems by combining new methods from machine learning (reinforcement learning) with classical tools from optimal control (dynamic programming, regression methods, duality formulas).

Project Webpages

Selected Publications

  • C. Bayer, P. Friz, and J. Gatheral. Pricing under rough volatility. Quantitative Finance, 16(6):887–904, 2016.
  • D. Belomestny and J. Schoenmakers. Advanced simulation-based methods for optimal stopping and control. Palgrave Macmillan, London, 2018.
  • D. Belomestny, J. Schoenmakers, V. Spokoiny, and B. Zharkynbay. Optimal stopping via reinforced regression. Comm. in Math. Sci. to appear, 2019+.

Preprints

  • C. Bayer, R. Tempone, and S. Wolfers. Pricing American options by exercise rate optimization. arXiv:1809.07300, 2018.
  • C. Bayer, D. Belomestny, P. Hager, P. Pigato, J. Schoenmakers. Randomized optimal stopping algorithms and their convergence analysis. arXiv preprint arXiv:2002.00816, 2020

Selected Pictures

Rough volatility

Rough Volatility

Exercise rate for max-call option

exercise rate for max-call option

Asymptotic formulas

Implied smile for rough volatility

Implied smile for rough volatility

Moderate deviations - Rough Bergomi model

Moderate deviations – Rough Bergomi model

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