On measure solutions of backward stochastic differential equations

Stefan Ankirchner, Peter Imkeller and Alexandre Popier

Stochastic Processes and their Applications, 2009, vol. 119, issue 9, 2744-2772

Abstract: We consider backward stochastic differential equations (BSDEs) with nonlinear generators typically of quadratic growth in the control variable. A measure solution of such a BSDE will be understood as a probability measure under which the generator is seen as vanishing, so that the classical solution can be reconstructed by a combination of the operations of conditioning and using martingale representations. For the case where the terminal condition is bounded and the generator fulfills the usual continuity and boundedness conditions, we show that measure solutions with equivalent measures just reinterpret classical ones. For the case of terminal conditions that have only exponentially bounded moments, we discuss a series of examples which show that in the case of non-uniqueness, classical solutions that fail to be measure solutions can coexist with different measure solutions.

Keywords: Backward; stochastic; differential; equation; Stochastic; control; Hedging; of; contingent; claim; Martingale; measure; Martingale; representation; Girsanov's; theorem; Weak; solution; Measure; solution; Brownian; motion (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (4)

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