Backward Stochastic Linear Quadratic Optimal Control with Expectational Equality Constraint

Yanrong Lu, Jize Li and Yonghui Zhou ()
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Yanrong Lu: School of Mathematics, Guizhou Normal University, Guiyang 550025, China
Jize Li: School of Mathematics, Guizhou Normal University, Guiyang 550025, China
Yonghui Zhou: School of Mathematics, Guizhou Normal University, Guiyang 550025, China

Mathematics, 2025, vol. 13, issue 8, 1-18

Abstract: This paper investigates a backward stochastic linear quadratic control problem with an expected-type equality constraint on the initial state. By using the Lagrange multiplier method, the problem with a uniformly convex cost functional is first transformed into an equivalent unconstrained parameterized backward stochastic linear quadratic control problem. Then, under the surjectivity of the linear constraint, the equivalence between the original problem and the dual problem is proven by Lagrange duality theory. Subsequently, with the help of the maximum principle, an explicit solution of the optimal control for the unconstrained problem is obtained. This solution is feedback-based and determined by an adjoint stochastic differential equation, a Riccati-type ordinary differential equation, a backward stochastic differential equation, and an equality, thereby yielding the optimal control for the original problem. Finally, an optimal control for an investment portfolio problem with an expected-type equality constraint on the initial state is explicitly provided.

Keywords: backward stochastic optimal control; expectation equality constraint; maximum principle; Riccati equation; Lagrange duality theory (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2025
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