Learning Parameter Dependence for Fourier-Based Option Pricing with Tensor Trains

Source abstract

A long-standing issue in mathematical finance is the speed-up of option pricing, especially for multi-asset options. A recent study has proposed to use tensor train learning algorithms to speed up Fourier transform (FT)-based option pricing, utilizing the ability of tensor trains to compress high-dimensional tensors. In this study, we focus on another usage of the tensor train, which is to compress functions, including their parameter dependence. Here, we propose a pricing method, where, by a tensor train learning algorithm, we build tensor trains that approximate functions appearing in FT-based option pricing with their parameter dependence and efficiently calculate the option price for the varying input parameters. As a benchmark test, we run the proposed method to price a multi-asset option for the various values of volatilities or present asset prices. We show that, in the tested cases involving up to 11 assets, the proposed method outperforms Monte Carlo-based option pricing with 106 paths in terms of computational complexity while keeping better accuracy.