Two algorithms for the discrete time approximation of Markovian backward stochastic differential equations under local conditions

DOI10.1214/EJP.V20-3022zbMATH Open1322.60139arXiv1309.4378MaRDI QIDQ2515917FDOQ2515917

P. Turkedjiev

Publication date: 7 August 2015

Published in: Electronic Journal of Probability (Search for Journal in Brave)

Abstract: Two discretizations of a class of locally Lipschitz Markovian backward stochastic differential equations (BSDEs) are studied. The first is the classical Euler scheme which approximates a projection of the processes Z, and the second a novel scheme based on Malliavin weights which approximates the mariginals of the process Z directly. Extending the representation theorem of Ma and Zhang leads to advanced a priori estimates and stability results for this class of BSDEs. These estimates are then used to obtain competitive convergence rates for both schemes with respect to the number of points in the time-grid. The class of BSDEs considered includes Lipschitz BSDEs with fractionally smooth terminal condition as well as quadratic BSDEs with bounded, H"older continuous terminal condition (for bounded, differentiable volatility), and BSDEs related to proxy methods in numerical analysis.

Full work available at URL: https://arxiv.org/abs/1309.4378

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zbMATH Keywords

Malliavin calculusa priori estimatesapproximation schemesbackward stochastic differential equationsrepresentation theorem

Mathematics Subject Classification ID

Stochastic calculus of variations and the Malliavin calculus (60H07) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Computational methods for stochastic equations (aspects of stochastic analysis) (60H35) Numerical solutions to stochastic differential and integral equations (65C30)

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