BSDEs driven by multidimensional martingales and their applications to markets with funding costs
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Publication:3178727
Derivative securities (option pricing, hedging, etc.) (91G20) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Martingales with continuous parameter (60G44) Applications of stochastic analysis (to PDEs, etc.) (60H30) Financial applications of other theories (91G80)
Abstract: We establish some well-posedness and comparison results for BSDEs driven by one- and multi-dimensional martingales. On the one hand, our approach is largely motivated by results and methods developed in Carbone et al. (2008) and El Karoui and Huang (1997). On the other hand, our results are also motivated by the recent developments in arbitrage pricing theory under funding costs and collateralization. A new version of the comparison theorem for BSDEs driven by a multi-dimensional martingale is established and applied to the pricing and hedging BSDEs studied in Bielecki and Rutkowski (2014) and Nie and Rutkowski (2014). This allows us to obtain the existence and uniqueness results for unilateral prices and to demonstrate the existence of no-arbitrage bounds for a collateralized contract when both agents have non-negative initial endowments.
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- scientific article; zbMATH DE number 1069626
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