Backward stochastic differential equations with random stopping time and singular final condition

Nonlinear elliptic equations (35J60) Nonlinear boundary value problems for linear elliptic equations (35J65) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Stopping times; optimal stopping problems; gambling theory (60G40) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)

Abstract: In this paper we are concerned with one-dimensional backward stochastic differential equations (BSDE in short) of the following type: [Y_t=xi -int_{twedge au}^{ au}Y_r|Y_r|^q dr-int_{twedge au}^{ au}Z_r dB_r,qquad tgeq 0,] where

a u

is a stopping time,

q

is a positive constant and

x i

is a

m a t h c a l F_{a u}

-measurable random variable such that

m a t h b f P (x i = + i n f t y) > 0

. We study the link between these BSDE and the Dirichlet problem on a domain

D s u b s e t m a t h b b R^{d}

and with boundary condition

g

, with

g = + i n f t y

on a set of positive Lebesgue measure. We also extend our results for more general BSDE.

Review text

Let \(W\) denote a \(d\)-dimensional Brownian motion and \(q>0\). The author of the present paper studies the one-dimensional backward stochastic differential equation (BSDE) \[ dY_t=Y_t| Y_t|^q dt+Z_tdW_t,\quad t\in[0,T[, \] related to an \({\mathcal F}^W_{\tau}\)-measurable random variable \(\xi\) with values in \(\overline{\mathbb R}_+=\mathbb R_+\cup\{+\infty\}\) such that \(P\{\xi=+\infty\}>0\). Given an open bounded domain \(D\subset \mathbb R^d\) with \(C^2\)-boundary and a diffusion process \(X\) with strongly non degenerate diffusion coefficient, governed by the Brownian motion \(W\), \(\tau\) denotes the moment when the process \(X\) leaves \(D\) for the first time. The author shows that the above BSDE with \(\xi=g(X_\tau)\) gives a stochastic interpretation of the PDE \(-Lu+u| u|^q=0\) in \(D\) (\(L\) denotes the infinitesimal generator of the diffusion process \(X\)) endowed with the Dirichlet condition \(u=g\) on \(\partial D\). In general, a solution of this PDE has a blow-up set \(\Gamma\subset\partial D\). For \(q=2\) and \(D\) the unit ball in \(\mathbb R^2\), Le Gall, 1993, described all solutions of the PDE by a purely stochastic method and associated them with couples \((\Gamma,\nu)\), where \(\nu\) is a Radon measure on \(\partial D-\Gamma\). Contrarily to Le Gall, the author of the present paper gives a stochastic interpretation in terms of BSDEs. His approach extends his former results [Stochastic Processes Appl. 116, No. 12, 2014--2056 (2006; Zbl 1116.60026)] for parabolic PDEs interpreted stochastically by a BSDE of the above type but with \(\tau\) being a deterministic time horizon. Apart from the objective of the stochastic interpretation of elliptic PDEs with blow-up effect the results are also extended to more general BSDEs.

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