BSEs and BSDEs with non-Lipschitz drivers: comparison, convergence and robustness

DOI10.3150/12-BEJ445MaRDI QIDQ358147zbMATH OpenOpenAlexFDO

Authors Patrick Cheridito, Mitja Stadje

Publication date 16 August 2013

Published in Bernoulli (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1002.0175, https://projecteuclid.org/euclid.bj/1372251153

zbMATH Keywords

robustnessbackward stochastic differential equationcomparison theoremapproximation schemebackward stochastic difference equation

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10)

Abstract: We provide existence results and comparison principles for solutions of backward stochastic difference equations (BS$Delta$Es) and then prove convergence of these to solutions of backward stochastic differential equations (BSDEs) when the mesh size of the time-discretizaton goes to zero. The BS$Delta$Es and BSDEs are governed by drivers $f^N(t,omega,y,z)$ and $f(t,omega,y,z),$ respectively. The new feature of this paper is that they may be non-Lipschitz in z. For the convergence results it is assumed that the BS$Delta$Es are based on d-dimensional random walks $W^N$ approximating the d-dimensional Brownian motion W underlying the BSDE and that $f^N$ converges to f. Conditions are given under which for any bounded terminal condition $xi$ for the BSDE, there exist bounded terminal conditions $x{i}^N$ for the sequence of BS$Delta$Es converging to $xi$, such that the corresponding solutions converge to the solution of the limiting BSDE. An important special case is when $f^N$ and f are convex in z. We show that in this situation, the solutions of the BS$Delta$Es converge to the solution of the BSDE for every uniformly bounded sequence $x{i}^N$ converging to $xi$. As a consequence, one obtains that the BSDE is robust in the sense that if $(W^N,x{i}^N)$ is close to $(W,xi)$ in distribution, then the solution of the Nth BS$Delta$E is close to the solution of the BSDE in distribution too.

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