Aurélien Alfonsi (École des Ponts ParisTech)
Title : How many inner simulations to compute conditional expectations with least-square Monte Carlo?
Abstract: The problem of computing the conditional expectation E[f(Y)|X] with least-square Monte-Carlo is of general importance and has been widely studied. To solve this problem, it is usually assumed that one has as many samples of Y as of X. However, when samples are generated by computer simulation and the conditional law of Y given X can be simulated, it may be relevant to sample K ∈ N values of Y for each sample of X. The present work determines the optimal value of K for a given computational budget, as well as a way to estimate it. The main takeaway message is that the computational gain can be all the more important as the computational cost of sampling Y given X is small with respect to the computational cost of sampling X. Numerical illustrations on the optimal choice of K and on the computational gain are given on different examples including one inspired by risk management.