Stochastic Maximum Principle

Jakša Cvitanić and Jianfeng Zhang
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Jakša Cvitanić: California Institute of Technology
Jianfeng Zhang: University of Southern California

Chapter Chapter 10 in Contract Theory in Continuous-Time Models, 2013, pp 183-227 from Springer

Abstract: Abstract As an important application of BSDEs and FBSDEs, in this chapter we present a classical method of the Stochastic Control Theory, the stochastic maximum principle, the main technical tool in this book. We first present stochastic control of BSDEs and then much more complex stochastic control of FBSDEs. Necessary conditions are obtained in terms of appropriate adjoint processes, which, under some conditions, can be characterized in terms of an FBSDE system. Sufficient conditions are stated in terms of the corresponding Hamiltonian function. Similar results are presented also for the case of the so-called weak formulation, in which the agent controls the distribution of the output process.

Keywords: Stochastic Maximum Principle; Adjoint Process; Stochastic Control; Hamiltonian Function; Linear BSDE (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprfcp:978-3-642-14200-0_10

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DOI: 10.1007/978-3-642-14200-0_10

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