SPA Seminar: Deep Learning for Energy Market Contracts: Dynkin Game with Doubly RBSDEs

Abstract: We formulate a Contract for Difference (CfD) with early exit options as a two-player zero-sum Dynkin game, reflecting the strategic interaction between an electricity producer and a regulatory entity. The game incorporates penalties for early termination and mean-reverting price dynamics, with the value characterized through a doubly reflected backward stochastic differential equation (DRBSDE). To compute the contract value and optimal stopping strategies, we develop a neural solver that approximates the DRBSDE solution using a sequence of neural networks trained on simulated trajectories. The method avoids discretizing the state space, supports time-dependent barriers, and scales to high-dimensional settings. We establish a convergence result and test the method on two scenarios: a benchmark symmetric game in 20 dimensions, and a CfD model with 24-dimensional electricity prices representing multiple European zones. The results demonstrate that the proposed solver accurately captures the contract's value and optimal stopping regions, with consistent performance across dimensional settings. This is joint work with Nacira Agram, Ihsan Arharas and Jan Rems.

This is a seminar in our seminar series on Stochastic Pocesses and Applications (SPA).