Convergence of BSEs driven by random walks to BSDEs: the case of (in)finite activity jumps with general driver

DOI10.1016/J.SPA.2015.11.013zbMATH Open1335.60132arXiv1406.7145OpenAlexW2184249430MaRDI QIDQ265658FDOQ265658

Dilip B. Madan, Mitja Stadje, Martijn R. Pistorius

Publication date: 4 April 2016

Published in: Stochastic Processes and their Applications (Search for Journal in Brave)

Abstract: In this paper we present a weak approximation scheme for BSDEs driven by a Wiener process and an (in)finite activity Poisson random measure with drivers that are general Lipschitz functionals of the solution of the BSDE. The approximating backward stochastic difference equations (BSDelta Es) are driven by random walks that weakly approximate the given Wiener process and Poisson random measure. We establish the weak convergence to the solution of the BSDE and the numerical stability of the sequence of solutions of the BSDelta Es. By way of illustration we analyse explicitly a scheme with discrete step-size distributions.

Full work available at URL: https://arxiv.org/abs/1406.7145

Recommendations

• BS\(\Delta\)Es and BSDEs with non-Lipschitz drivers: comparison, convergence and robustness
• Numerical approximation of BSDEs using local polynomial drivers and branching processes
• Numerical method for backward stochastic differential equations
• A decomposition approach for the discrete-time approximation of FBSDEs with a jump
• Weak approximation of second-order BSDEs

zbMATH Keywords

[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=L%EF%BF%BD%EF%BF%BDvy+process&go=Go L��vy process]weak convergencebackward stochastic differential equationsrandom walksbackward stochastic difference equationsinfinite jump-activityPoisson random measure

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Central limit and other weak theorems (60F05) Sums of independent random variables; random walks (60G50) Random measures (60G57) 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) Stochastic difference equations (39A50)

Cites Work

• Approximations of small jumps of Lévy processes with a view towards simulation
• Financial Modelling with Jump Processes
• Title not available (Why is that?)
• Numerical method for backward stochastic differential equations
• Quadratic BSDEs driven by a continuous martingale and applications to the utility maximization problem
• Discrete-time approximation of decoupled Forward-Backward SDE with jumps
• Backward stochastic differential equations with enlarged filtration: Option hedging of an insider trader in a financial market with jumps
• Utility maximization in incomplete markets
• Dynamic exponential utility indifference valuation
• A new existence result for quadratic BSDEs with jumps with application to the utility maximization problem
• Pricing via utility maximization and entropy.
• Utility maximization in a jump market model
• Necessary Conditions for Optimal Control of Stochastic Systems with Random Jumps
• Backward Stochastic Differential Equations in Finance
• Moment estimates for Lévy processes
• On the robustness of backward stochastic differential equations.
• Stability of Doob-Meyer decomposition under extended convergence
• Title not available (Why is that?)
• Numerical approximation of doubly reflected BSDEs with jumps and RCLL obstacles
• Discrete-time approximation of decoupled forward-backward stochastic differential equations driven by pure jump Lévy processes
• Backward stochastic differential equations and integral-partial differential equations
• Mean-Variance Hedging When There Are Jumps
• DYNAMIC INDIFFERENCE VALUATION VIA CONVEX RISK MEASURES
• Backward stochastic differential equations with jumps and their actuarial and financial applications. BSDEs with jumps
• BS\(\Delta\)Es and BSDEs with non-Lipschitz drivers: comparison, convergence and robustness
• Title not available (Why is that?)
• Title not available (Why is that?)
• Title not available (Why is that?)
• FROM SMILE ASYMPTOTICS TO MARKET RISK MEASURES
• Robust Portfolio Choice and Indifference Valuation
• TIME‐CONSISTENT AND MARKET‐CONSISTENT EVALUATIONS
• Donsker-type theorem for BSDEs
• Backward stochastic differential equations with jumps and related nonlinear expectations
• Bounded solutions to backward SDEs with jumps for utility optimization and indifference hedging

Cited In (9)

• Benchmarking in two price financial markets
• Dynamic conic hedging for competitiveness
• Option returns
• Lower and upper pricing of financial assets
• Numerical methods for backward stochastic differential equations: a survey
• Stability results for martingale representations: The general case
• Stability of backward stochastic differential equations: the general Lipschitz case
• On dynamic spectral risk measures, a limit theorem and optimal portfolio allocation
• Reflections on BSDEs

This page was built for publication: Convergence of BS\(\operatorname{\Delta}\)Es driven by random walks to BSDEs: the case of (in)finite activity jumps with general driver

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q265658)