Strong solutions of forward-backward stochastic differential equations with measurable coefficients (Q2066956): Difference between revisions

The paper provides the existence of (strong) solutions to fully coupled systems of forward-backward stochastic differential equations (FBSDEs) with irregular coefficients, i.e., \begin{align*} X_t &= x+\int_0^t b(u,X_u,Y_u,Z_u)\, d u + \int_0^t \sigma\, d W_u, \\ Y_t &= h(X_T)+\int_t^T g(u,X_u,Y_u,Z_u)\, du - \int_t^T Z_u \, d W_u, \quad t \in [0,T], \end{align*} where \(b\), \(g\) and \(h\) are measurable functions, uniformly continuous in \((y, z)\) and \(W\) is a multi-dimensional Brownian motion. The authors' approach to prove the existence of solutions is based on approximating the functions \(b\), \(g\) and \(h\) by smooth functions and to use ideas from Malliavin calculus, notably a compactness principle. Furthermore, despite the irregularity of the coefficients, it is shown that solutions of the such FBSDE are differentiable in the Malliavin sense and, as functions of the initial variable, in the Sobolev sense.