Adaptive importance sampling for multilevel Monte Carlo Euler method

Abstract

This paper focuses on the study of an original combination of the Multilevel Monte Carlo method introduced by Giles [Multilevel Monte Carlo path simulation, Oper. Res. 56(3) (2008), pp. 607–617.] and the popular importance sampling technique. To compute the optimal choice of the parameter involved in the importance sampling method, we rely on Robbins–Monro type stochastic algorithms. On the one hand, we extend our previous work [M. Ben Alaya, K. Hajji and A. Kebaier, Importance sampling and statistical Romberg method, Bernoulli 21(4) (2015), pp. 1947–1983.] to the Multilevel Monte Carlo setting. On the other hand, we improve [M. Ben Alaya, K. Hajji and A. Kebaier, Importance sampling and statistical Romberg method, Bernoulli 21(4) (2015), pp. 1947–1983.] by providing a new adaptive algorithm avoiding the discretization of any additional process. Furthermore, from a technical point of view, the use of the same stochastic algorithms as in [M. Ben Alaya, K. Hajji and A. Kebaier, Importance sampling and statistical Romberg method, Bernoulli 21(4) (2015), pp. 1947–1983.] appears to be problematic. To overcome this issue, we employ an alternative version of stochastic algorithms with projection (see, e.g. Laruelle, Lehalle and Pagès [Optimal posting price of limit orders: learning by trading, Math. Financ. Econ. 7(3) (2013), pp. 359–403.]). In this setting, we show innovative limit theorems for a doubly indexed stochastic algorithm which appear to be crucial to study the asymptotic behaviour of the new adaptive Multilevel Monte Carlo estimator. Finally, we illustrate the efficiency of our method through applications from quantitative finance.