Snell envelope with path dependent multiplicative optimality criteria

TL;DR

This paper extends the classical Snell envelope to handle path-dependent multiplicative criteria, proposing a new backward recursion and importance sampling scheme with theoretical convergence analysis.

Contribution

It introduces a novel variation of the Snell envelope backward recursion for path-dependent multiplicative criteria and develops an importance sampling algorithm with convergence guarantees.

Findings

The importance sampling scheme concentrates computational effort effectively.

The estimator is proven to be high biased.

Non-asymptotic convergence estimates are provided.

Abstract

We analyze the Snell envelope with path dependent multiplicative optimality criteria. Especially for this case, we propose a variation of the Snell envelope backward recursion which allows to extend some classical approxima- tion schemes to the multiplicatively path dependent case. In this framework, we propose an importance sampling particle approximation scheme based on a specific change of measure, designed to concentrate the computational effort in regions pointed out by the criteria. This new algorithm is theoritically studied. We provide non asymptotic convergence estimates and prove that the resulting estimator is high biased.