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DNN Expression Rate Analysis of High-dimensional PDEs: Application to Option Pricing

by D. Elbrächter and Ph. Grohs and A. Jentzen and Ch. Schwab

(Report number 2018-33)

Abstract
We analyze approximation rates by deep ReLU networks of a class of multi-variate solutions of Kolmogorov equations which arise in option pricing. Key technical devices are deep ReLU architectures capable of efficiently approximating tensor products. Combining this with results concerning the approximation of well behaved (i.e. fulfilling some smoothness properties) univariate functions, this provides insights into rates of deep ReLU approximation of multi-variate functions with tensor structures. We apply this in particular to the model problem given by the price of a european maximum option on a basket of \(d\) assets within the Black-Scholes model for european maximum option pricing. We prove that the solution to the \(d\)-variate option pricing problem can be approximated up to an \(\varepsilon\)-error by a deep ReLU network of size \(\mathcal{O}\left(d^{2+\frac{1}{n}}\varepsilon^{-\frac{1}{n}}\right)\) where \(n\in \mathbb{N}\) is abitrary (with the constant implied in \(\mathcal{O}\,(\cdot)\) depending on \(n\)). The techniques developed in the constructive proof are of independent interest in the analysis of the expressive power of deep neural networks for solution manifolds of PDEs in high dimension.

Keywords: neural network approximation, low rank approximation, option pricing, high dimensional PDE

@Techreport{EGJS18_787,
  author = {D. Elbr\"achter and Ph. Grohs and A. Jentzen and Ch. Schwab},
  title = {DNN Expression Rate Analysis of High-dimensional PDEs: Application to Option Pricing},
  institution = {Seminar for Applied Mathematics, ETH Z{\"u}rich},
  number = {2018-33},
  address = {Switzerland},
  url = {https://www.sam.math.ethz.ch/sam_reports/reports_final/reports2018/2018-33.pdf },
  year = {2018}
}

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