On Markovian solutions to Markov Chain BSDEs
Probability
2011-11-28 v1 Classical Analysis and ODEs
Computational Finance
Abstract
We study (backward) stochastic differential equations with noise coming from a finite state Markov chain. We show that, for the solutions of these equations to be `Markovian', in the sense that they are deterministic functions of the state of the underlying chain, the integrand must be of a specific form. This allows us to connect these equations to coupled systems of ODEs, and hence to give fast numerical methods for the evaluation of Markov-Chain BSDEs.
Cite
@article{arxiv.1111.5739,
title = {On Markovian solutions to Markov Chain BSDEs},
author = {Samuel N. Cohen and Lukasz Szpruch},
journal= {arXiv preprint arXiv:1111.5739},
year = {2011}
}