BSDEs with weak terminal condition (Q2338910)

The authors introduce a new class of backward stochastic differential equations (BSDEs) in which the \(T\)-terminal value \(Y_{T}\) of the solution \((Y,Z)\) is not a fixed random variable but rather satisfies a weak constraint of the form \(\operatorname{E}[\varPsi(Y_{T})]\geq m\) for some decreasing map \(\varPsi\) and some threshold \(m\). A non-Markovian BSDE formulation of the PDE characterization of certain Markovian stochastic target problems is obtained, and properties of the minimal value are studied. It is noted that some of these properties generalize to certain non-Markovian frameworks pertaining to quantile hedging and hedging under loss constraints.