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Systems of ergodic BSDEs arising in regime switching forward performance processes

Ying Hu, Gechun Liang () and Shanjian Tang

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Abstract: We introduce and solve a new type of quadratic backward stochastic differential equation systems defined in an infinite time horizon, called \emph{ergodic BSDE systems}. Such systems arise naturally as candidate solutions to characterize forward performance processes and their associated optimal trading strategies in a regime switching market. In addition, we develop a connection between the solution of the ergodic BSDE system and the long-term growth rate of classical utility maximization problems, and use the ergodic BSDE system to study the large time behavior of PDE systems with quadratic growth Hamiltonians.

Date: 2018-07, Revised 2020-06
New Economics Papers: this item is included in nep-upt
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