Publication:
Second-order backward stochastic differential equations and fully nonlinear parabolic pdes

dc.contributor.coauthorCheridito, Patrick
dc.contributor.coauthorTouzi, Nizar
dc.contributor.coauthorVictoir, Nicolas
dc.contributor.departmentDepartment of Economics
dc.contributor.kuauthorSoner, Halil Mete
dc.contributor.kuprofileFaculty Member
dc.contributor.yokidN/A
dc.date.accessioned2024-11-09T23:01:11Z
dc.date.issued2007
dc.description.abstractFor a d-dimensional diffusion of the form dXt = μ(X t)dt + σ(Xt)dWt and continuous functions f and g, we study the existence and uniqueness of adapted processes Y, Z, Γ, and A solving the second-order backward stochastic differential equation (2BSDE) dYt = f(t, Xt, Yt, Z t, Γt)dt + Z′t o dXt, t ∈ [0, T), dZt = Atdt + ΓtdX t, t ∈[0, T), YT = g(XT). If the associated PDE -vt(t, x) + f(t, x, v(t, x), Dv(t, x), D 2v(t, x)) = 0, (t, x) ∈ [0, 7) × ℝd, v(T, x) = g(x), has a sufficiently regular solution, then it follows directly from Itô's formula that the processes v(t, Xt), Dv(t, X t), D2v(t, Xt), ℒDv(t, Xt), t ∈ [0, T], solve the 2BSDE, where ℒ is the Dynkin operator of X without the drift term. The main result of the paper shows that if f is Lipschitz in Y as well as decreasing in Γ and the PDE satisfies a comparison principle as in the theory of viscosity solutions, then the existence of a solution (Y, Z, Γ, A) to the 2BSDE implies that the associated PDE has a unique continuous viscosity solution v and the process Y is of the form Yt = v(t, Xt), t ∈ [0, T]. In particular, the 2BSDE has at most one solution. This provides a stochastic representation for solutions of fully nonlinear parabolic PDEs. As a consequence, the numerical treatment of such PDEs can now be approached by Monte Carlo methods. © 2006 Wiley Periodicals, Inc.
dc.description.indexedbyScopus
dc.description.issue7
dc.description.openaccessYES
dc.description.publisherscopeInternational
dc.description.volume60
dc.identifier.doi10.1002/cpa.20168
dc.identifier.issn0010-3640
dc.identifier.linkhttps://www.scopus.com/inward/record.uri?eid=2-s2.0-34249723795&doi=10.1002%2fcpa.20168&partnerID=40&md5=8017793cee8c1cb6d56e29064aa39983
dc.identifier.quartileQ1
dc.identifier.scopus2-s2.0-34249723795
dc.identifier.urihttp://dx.doi.org/10.1002/cpa.20168
dc.identifier.urihttps://hdl.handle.net/20.500.14288/8175
dc.keywordsN/A
dc.languageEnglish
dc.publisherWiley
dc.sourceCommunications on Pure and Applied Mathematics
dc.subjectEconomy
dc.subjectMathematics
dc.titleSecond-order backward stochastic differential equations and fully nonlinear parabolic pdes
dc.typeJournal Article
dspace.entity.typePublication
local.contributor.authorid0000-0002-0824-1808
local.contributor.kuauthorSoner, Halil Mete
local.publication.orgunit1College of Administrative Sciences and Economics
local.publication.orgunit2Department of Economics
relation.isOrgUnitOfPublication7ad2a3bb-d8d9-4cbd-a6a3-3ca4b30b40c3
relation.isOrgUnitOfPublication.latestForDiscovery7ad2a3bb-d8d9-4cbd-a6a3-3ca4b30b40c3

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