Diagonally quadratic BSDE with oblique reflection and optimal switching

Peng Luo and Mengbo Zhu

Stochastic Processes and their Applications, 2024, vol. 176, issue C

Abstract: The present paper is devoted to the study of diagonally quadratic backward stochastic differential equation with oblique reflection. Using a penalization approach, we show the existence of a solution by providing some delicate a priori estimates. We further obtain the uniqueness by verifying the first component of the solution is indeed the value of a switching problem for quadratic BSDEs. Moreover, we provide an extension for the solvability and apply our results to study a risk-sensitive switching problem for functional stochastic differential equations.

Keywords: Diagonally quadratic BSDEs; Oblique reflection; Optimal switching (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1016/j.spa.2024.104424

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