Large deviations for non-Markovian diffusions and a path-dependent eikonal equation

DOI10.1214/15-AIHP678zbMATH Open1351.35276arXiv1407.5314OpenAlexW2104152840MaRDI QIDQ330697FDOQ330697

Zhenjie Ren, Jin Ma, Jianfeng Zhang, Nizar Touzi

Publication date: 26 October 2016

Published in: Annales de l'Institut Henri Poincaré. Probabilités et Statistiques (Search for Journal in Brave)

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.

Full work available at URL: https://arxiv.org/abs/1407.5314

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zbMATH Keywords

large deviationsbackward stochastic differential equationsviscosity solutions of path-dependent PDEs

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Viscosity solutions to PDEs (35D40) Second-order parabolic equations (35K10) PDEs with randomness, stochastic partial differential equations (35R60) Applications of stochastic analysis (to PDEs, etc.) (60H30)

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Cited In (7)

• 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
• Nonexponential Sanov and Schilder theorems on Wiener space: BSDEs, Schrödinger problems and control
• Comparison of Viscosity Solutions of Semilinear Path-Dependent PDEs
• 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
• Path-Dependent Hamilton--Jacobi Equations with Super-Quadratic Growth in the Gradient and the Vanishing Viscosity Method

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