English

BSDEs with weak terminal condition

Probability 2014-02-25 v2 Optimization and Control

Abstract

We introduce a new class of Backward Stochastic Differential Equations in which the TT-terminal value YTY_{T} of the solution (Y,Z)(Y,Z) is not fixed as a random variable, but only satisfies a weak constraint of the form E[Ψ(YT)]mE[\Psi(Y_{T})]\ge m, for some (possibly random) non-decreasing map Ψ\Psi and some threshold mm. We name them \textit{BSDEs with weak terminal condition} and obtain a representation of the minimal time tt-values YtY_{t} such that (Y,Z)(Y,Z) is a supersolution of the BSDE with weak terminal condition. It provides a non-Markovian BSDE formulation of the PDE characterization obtained for Markovian stochastic target problems under controlled loss in Bouchard, Elie and Touzi \cite{BoElTo09}. We then study the main properties of this minimal value. In particular, we analyze its continuity and convexity with respect to the mm-parameter appearing in the weak terminal condition, and show how it can be related to a dual optimal control problem in Meyer form. These last properties generalize to a non Markovian framework previous results on quantile hedging and hedging under loss constraints obtained in F\"{o}llmer and Leukert \cite{FoLe99,FoLe00}, and in Bouchard, Elie and Touzi \cite{BoElTo09}.

Keywords

Cite

@article{arxiv.1210.5364,
  title  = {BSDEs with weak terminal condition},
  author = {Bruno Bouchard and Romuald Elie and Anthony Réveillac},
  journal= {arXiv preprint arXiv:1210.5364},
  year   = {2014}
}
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