Stochastic Gradient Descent in Continuous Time
24 Pages Posted: 20 Apr 2017
Date Written: April 17, 2017
Stochastic gradient descent in continuous time (SGDCT) provides a computationally efficient method for the statistical learning of continuous-time models, which are widely used in science, engineering, and finance. The SGDCT algorithm follows a (noisy) descent direction along a continuous stream of data. SGDCT performs an online parameter update in continuous time, with the parameter updates θt satisfying a stochastic differential equation. We prove that limt→∞ ∇g(θt) = 0 where g is a natural objective function for the estimation of the continuous-time dynamics. The convergence proof leverages ergodicity by using an appropriate Poisson equation to help describe the evolution of the parameters for large times. SGDCT can also be used to solve continuous-time optimization problems, such as American options. For certain continuous-time problems, SGDCT has some promising advantages compared to a traditional stochastic gradient descent algorithm. As an example application, SGDCT is combined with a deep neural network to price high-dimensional American options (up to 100 dimensions).
Keywords: Statistical Learning, Machine Learning, Finance, American Options, Financial Engineering, Financial Math
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