Welcome to the course Computational methods for stochastic differential equations and machine learning (joint SF2525 master level and SF3581 graduate level) 2021

The lectures and exercise sessions will be given online at the scheduled times using Zoom:

Lectures: Zoom ID 630 9954 8396

https://kth-se.zoom.us/j/63099548396

$OMX Stockholm 30 index$
OMX Stockholm 30 index för en dag, en måndag och tre år, från Avanza.

Stochastic molecular dynamics of liquid-solid phase transition

$The classical Spacewar game$
The classical Spacewar game, emulated at http://www.masswerk.at/spacewar/

The course focuses on the following application areas and mathematical and numerical methods to solve them. In each application we study relevant mathematical and numerical methods to solve the problem. This includes methods and theory for ordinary, partial and stochastic differential equations, and optimal control, treating e.g. weak and strong approximation, Monte Carlo methods, variance reduction, large deviations for rare events, game theory, neural networks.

Applications included are e.g. finance, where stock prices are modelled using SDEs, molecular dynamics, where SDEs are used to model systems with constant temperature, and machine learning where the basic stochastic gradient descent algorithm is a numerical scheme for perturbed gradient flow. Optimal control theory is used e.g. in optimal hedging, finding reaction rates in molecular dynamics and analyzing machine learning convergence rates. The course includes computer projects using the machine learning software TensorFlow.

Week	 Application                       Subject

3,4,5    stocks with noise                 stochastic differential equations,  
         molecular dynamics                weak and strong convergence, Ito-calculus
         AI                                Euler's method

6,7,8,9 option price                        The Feynman-Kac formula, 
        American options                    Monte-Carlo Methods, variance reduction 
                                            finite difference methods

12,13,15 optimal hedging                     calculus of variations, optimal control 
         reaction rates                      dynamical programming, 
                                             Hamilton-Jacobi equations, 
                                             large deviations and rare events 

16,17,19 machine learning                    game theory, differential games, 
         AI                                  neural networks, 
                                             stochastic gradient descent 

20       presentations e.g:
         multi-level Monte Carlo,             variance reduction,
         ground water flow                    Convection-diffusion equations, 
         neural networks, AI

Course material and evaluation

- New version of the lecture notes
- Chapter 6 in 
"An Introduction to Mathematical Optimal Control Theory" by L.C. Evans

- papers for the presentations are here
- course syllabus
- course evaluation,

Teachers

Anders Szepessy, department of mathematics, szepessy@kth.se, office hour Mondays 12-13.

Xin Huang, department of mathematics, xinhuang@kth.se, office hour Fridays 15.30-16.30

Schedule

Starting Friday January 22th, 13.15-15.00. 
Schedule for lectures 

Preliminary plan, in addition guest a guest lecture, a tensor flow tutorial and a review
Lecture 1: chapter 1-2 Introduction and stochastic integral
Lecture 2: chapter 2, 3.1-3 Stochastic differential equations
Lecture 3: chapter 3.1, 3.4 Ito's formula and Stratonovich integrals
Lecture 4: chapter 4.2 Kolmogorov equations and Black-Scholes equation
Lecture 5: chapter 4.1-2 Black-Scholes equation and Feyman-Kac formula
Lecture 6: chapter 5.1 Option modelling and statistical error
Lecture 7: chapter 5.1-2 Statistical and time discretization errors
Lecture 8: chapter 6.1-2 American options and Lax equivalence theorem
Lecture 9: chapter 6.1-2 Lax equivalence theorem
Lecture 10: chapter 10 Machine learning (notes and video in Media Gallery)
Lecture 11: chapter 8.1-2 Optimal control 
Lecture 12: chapter 9 Rare events
Lecture 13: Guest lecture Jonas Kiessling (H-Ai AB & KTH) Some open problems in quantitative finance
Chapter 9, Rare events
Lecture 14: Chapter differential games, Chapter 8.3 Hamilton-Jacobi PDE and stochastic control

Homework, Computer Lab's , Presentations and Examination

The Examination consists of three parts: Homework problems, oral presentations and a written exam. The homework problems will be available here on the course www-page and each student hand in their own solution. The presentations are carried out by groups of two students. A substantial part of the written exam will be based on a list of questions given here .

The final grade of the course is pass/fail.

The maximal score for the written exam is 60, and to pass the course you must obtain a total score, homework included, of approximately 60. The homework and the presentation gives maximal 35 credits together, with maximal 5 credits for each homework 1,2,3,5 and maximal 10 credits for the final presentation and homework 4. To pass it is required to obtain at least 3 credits on each of the homeworks 1,2,3,5 and at least 6 credits on homework 4, after possible revision.

Homework and dates (preliminary versions)

Homework 1 on Ito integrals, due February 8th.
Homework 2 on Euler approximations of Ito differential equations, due March 1st.

Homework 3 on stochastic volatility, delta and stability, due April 5th.

Homework 4 on machine learning and Tensor Flow, due April 26th
Homework 5 on classifying figures, due May 10th, the codes are in the Canvas "Files", with a direct link here.

In Homework 4 and 5 you need to use TensorFlow 2. You can use pip to install TensorFlow 2 by following the instructions in this document: Installing_Tensorflow_2.pdf. You can also follow the guiding-page here.

SDE-poster project: Choose a paper from the list before April 9th and hand in a poster-pdf-file in the link "Uppgifter", due May 13th, to be presented May 17th. Detailed information is in Section "Presentations" below.

Presentations

The list of Files includes papers to be used for the presentations. The idea is that each group of two choose a paper following the instructions in the thread "how to choose a project" in "Discussions". Here is a list of papers taken: at most two groups per paper. The groups present the results in a Zoom meeting May 17th and submits a poster. Probably we have time for ten minutes for each presentation this year. You may suggest another paper. Read the literature and study the formulation and motivation of the problem. Use your knowledge and fantasy to formulate the mathematical modell, the problem you want to solve and an SDE simulation. Try to use the literature to formulate interesting problems. You are welcome to discuss with the teachers.

Concerning presentations: Projects are presented by lab groups of two.

Make a poster and prepare a ten minutes presentation. Slides for the presentations can be uploaded in "Uppgifter". A good poster includes at least formulation of the problem and some results and conclusion. The posters will be posted in this Canvas page. In the KTH-library you can find online the book "Handbook of Writing for the Mathematical Sciences" by Nicholas Higham which include in chapter 12 "Preparing a Poster". If you have not made a poster before, here is a link to Latex poster templates (and a non fancy version).

Stochastic molecular dynamics of liquid solid phase transition
Sample paths of solutions to stochastic differential equation and its probabability density

Notes

8/2: Recordings of lecture 2 & 3 is in "Media Gallery and pdf are in "files".

FSF3581 VT21 (60354) Computational Methods for Stochastic Differential Equations