Characterization of Fully Coupled FBSDE in Terms of Portfolio Optimization

Samuel Drapeau, Peng Luo and Dewen Xiong

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Abstract: We provide a verification and characterization result of optimal maximal sub-solutions of BSDEs in terms of fully coupled forward backward stochastic differential equations. We illustrate the application thereof in utility optimization with random endowment under probability and discounting uncertainty. We show with explicit examples how to quantify the costs of incompleteness when using utility indifference pricing, as well as a way to find optimal solutions for recursive utilities.

Date: 2017-03, Revised 2019-09
New Economics Papers: this item is included in nep-upt
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