On backward stochastic differential equations and strict local martingales (Q429279)

Given a Brownian motion \(B\) and a strict local \(\mathbb{F}^B\)-martingale \(X\), i.e., a non negative local martingale which is not a martingale, the author of the present paper studies backward stochastic differential equations (BSDEs) \[ dY_t=-f(t,X_t,Y_t,Z_t)dt+Z_tdB_t,\;t\in[0,T],\;Y_T=g(X_T). \] If \(X\) solves the equation \(dX_t=-X_t^2dB_t,\;X_0=0,\) for a one-dimensional Brownian motion \(B\), \(X\) is a \(3\)-dimensional Bessel process and, thus, a strict local martingale, and, for \(g(x)=x\) and \(f=0\), the above BSDEs admits two solutions, \(Y^{(1)}_t=\operatorname{E}[X_T|{\mathcal F}^B_t],\;t\in[0,T]\) and the associated \(Z^{(1)}\), and, on the other hand also \(Y_t^{(2)}=X_t,\;Z_t^{(2)}=-X^2_t,\;t\in[0,T]\). This property of the existence of two different solutions which are \(L^p\)-integrable, for all \(0<p<1\), is studied by the author for general BSDEs as indicated above. He shows that, while the \(Y\)-component of one solution belongs to the class \(D\), the \(Y\)-component of the other solution does not belong to \(D\) but dominates strictly the first one. These two solutions are shown to be stochastic interpretations of two different viscosity solutions of the associated semi-linear PDE. However, it is also shown that, if a Lyapunov function exists, then the local martingale is a martingale, and the viscosity solution is unique.