Large deviations for non-Markovian diffusions and a path-dependent eikonal equation
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Abstract: This paper provides a large deviation principle for Non-Markovian, Brownian motion driven stochastic differential equations with random coefficients. Similar to Gao and Liu cite{GL}, this extends the corresponding results collected in Freidlin and Wentzell cite{FreidlinWentzell}. However, we use a different line of argument, adapting the PDE method of Fleming cite{Fleming} and Evans and Ishii cite{EvansIshii} to the path-dependent case, by using backward stochastic differential techniques. Similar to the Markovian case, we obtain a characterization of the action function as the unique bounded solution of a path-dependent version of the Eikonal equation. Finally, we provide an application to the short maturity asymptotics of the implied volatility surface in financial mathematics.
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Cited in
(9)- The small-noise limit of the most likely element is the most likely element in the small-noise limit
- A convergence theorem for Crandall-Lions viscosity solutions to path-dependent Hamilton-Jacobi-Bellman PDEs
- Path-dependent Hamilton-Jacobi equations with super-quadratic growth in the gradient and the vanishing viscosity method
- Nonexponential Sanov and Schilder theorems on Wiener space: BSDEs, Schrödinger problems and control
- On small-noise equations with degenerate limiting system arising from volatility models
- Path integral derivation and numerical computation of large deviation prefactors for non-equilibrium dynamics through matrix Riccati equations
- Nonequilibrium Markov processes conditioned on large deviations
- Donsker-Varadhan large deviations for path-distribution dependent SPDEs
- Comparison of viscosity solutions of semilinear path-dependent PDEs
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