Reflected Backward Stochastic Difference Equations with Finite State and their applications

Lifen An and Shaolin Ji

Papers from arXiv.org

Abstract: In this paper, we first establish the reflected backward stochastic difference equations with finite state (FS-RBSDEs for short). Then we explore the Existence and Uniqueness Theorem as well as the Comparison Theorem by "one step" method. The connections between FS-RBSDEs and optimal stopping time problems are investigated and we also show that the optimal stopping problems with multiple priors under Knightian uncertainty is a special case of our FS-RBSDEs. As a byproduct we develop the general theory of g-martingales in discrete time with finite state including Doob-Mayer Decomposition Theorem and Optional Sampling Theorem. Finally, we consider the pricing models of American Option in both complete and incomplete markets.

Date: 2010-01, Revised 2012-12
New Economics Papers: this item is included in nep-ets
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1001.3054

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