An Asymptotic Expansion of Forward-Backward SDEs with a Perturbed Driver

Akihiko Takahashi and Toshiaki Watanabe
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Akihiko Takahashi: Faculty of Economics, The University of Tokyo
Toshiaki Watanabe: Faculty of Economics, Hitotsubashi University

No CIRJE-F-976, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Inspired by non-linear pricing in finance, this paper presents a mathematical validity of an asymptotic expansion scheme for a system of forward-backward stochastic differential equations (FBSDEs) in terms of a perturbed driver in the BSDE and a small diffusion in the FSDE. In particular, we represent the coefficients of the expansion of the FBSDE up to an arbitrary order, and obtain the error estimate of the expansion with respect to the driver and the small noise perturbation --

Pages: 24pages
Date: 2015-05
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Citations: View citations in EconPapers (23)

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