Solving backward stochastic differential equations with quadratic-growth drivers by connecting the short-term expansions

Masaaki Fujii and Akihiko Takahashi

Stochastic Processes and their Applications, 2019, vol. 129, issue 5, 1492-1532

Abstract: This article proposes a new approximation scheme for quadratic-growth BSDEs in a Markovian setting by connecting a series of semi-analytic asymptotic expansions applied to short-time intervals. Although there remains a condition which needs to be checked a posteriori, one can avoid altogether time-consuming Monte Carlo simulation and other numerical integrations for estimating conditional expectations at each space–time node. Numerical examples of quadratic-growth as well as Lipschitz BSDEs suggest that the scheme works well even for large quadratic coefficients, and a fortiori for large Lipschitz constants.

Keywords: Asymptotic expansion; Discretization; Quadratic-growth BSDEs (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:spapps:v:129:y:2019:i:5:p:1492-1532

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DOI: 10.1016/j.spa.2018.05.009

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