Systems of ergodic BSDEs arising in regime switching forward performance processes
Probability
2020-06-29 v4 Mathematical Finance
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.
Cite
@article{arxiv.1807.01816,
title = {Systems of ergodic BSDEs arising in regime switching forward performance processes},
author = {Ying Hu and Gechun Liang and Shanjian Tang},
journal= {arXiv preprint arXiv:1807.01816},
year = {2020}
}
Comments
32 pages