Switching problem and related system of reflected backward SDEs

Said Hamadène and Jianfeng Zhang

Stochastic Processes and their Applications, 2010, vol. 120, issue 4, 403-426

Abstract: This paper studies a system of backward stochastic differential equations with oblique reflections (RBSDEs for short), motivated by the switching problem under Knightian uncertainty and recursive utilities. The main feature of our system is that its components are interconnected through both the generators and the obstacles. We prove existence, uniqueness, and stability of the solution of the RBSDE, and give the expression of the price and the optimal strategy for the original switching problem via a verification theorem.

Keywords: Real; options; Starting; and; stopping; problem; Switching; problem; Backward; SDEs; Reflected; BSDEs; Oblique; reflection; Snell; envelope; Optimal; stopping; problem (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (22)

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