Reflected forward-backward SDE s and obstacle problems with boundary conditions

Jin Ma and Jakša Cvitanić

International Journal of Stochastic Analysis, 2001, vol. 14, 1-26

Abstract:

In this paper we study a class of forward-backward stochastic differential equations with reflecting boundary conditions (FBSDER for short). More precisely, we consider the case in which the forward component of the FBSDER is restricted to a fixed, convex region, and the backward component will stay, at each fixed time, in a convex region that may depend on time and is possibly random. The solvability of such FBSDER is studied in a fairly general way. We also prove that if the coefficients are all deterministic and the backward equation is one-dimensional, then the adapted solution of such FBSDER will give the viscosity solution of a quasilinear variational inequality (obstacle problem) with a Neumann boundary condition. As an application, we study how the solvability of FBSDERs is related to the solvability of an American game option .

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnijsa:402830

DOI: 10.1155/S1048953301000090

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