A forward scheme for backward SDEs
C. Bender, R. Denk
Abstract. We introduce a forward scheme to simulate backward SDEs. Compared to existing schemes, we avoid high order nestings of conditional expectations backwards in time. In this way the error, when approximating the conditional expectation, in dependence of the time partition is significantly reduced. Besides this generic result, we present an implementable algorithm and prove its convergence. Finally, we demonstrate the strength of the new algorithm by solving a financial problem numerically.
Stochastic Processes Appl. 117 (2007), 1793-1812.
The paper is available here: pdf