An approximation scheme for semilinear parabolic PDEs with convex and coercive Hamiltonians

DOI10.1137/18M1198831zbMATH Open1429.65217arXiv1801.00583OpenAlexW2999318420WikidataQ114074296 ScholiaQ114074296MaRDI QIDQ5208749FDOQ5208749

Authors: Gechun Liang, Thaleia Zariphopoulou, S. Huang 

Publication date: 10 January 2020

Published in: SIAM Journal on Control and Optimization (Search for Journal in Brave)

Abstract: We propose an approximation scheme for a class of semilinear parabolic equations that are convex and coercive in their gradients. Such equations arise often in pricing and portfolio management in incomplete markets and, more broadly, are directly connected to the representation of solutions to backward stochastic differential equations. The proposed scheme is based on splitting the equation in two parts, the first corresponding to a linear parabolic equation and the second to a Hamilton-Jacobi equation. The solutions of these two equations are approximated using, respectively, the Feynman-Kac and the Hopf-Lax formulae. We establish the convergence of the scheme and determine the convergence rate, combining Krylov's shaking coefficients technique and Barles-Jakobsen's optimal switching approximation.

Full work available at URL: https://arxiv.org/abs/1801.00583

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zbMATH Keywords

Feynman-Kac formulaviscosity solutionssplittingHopf-Lax formulaoptimal switching approximationshaking coefficients technique

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Portfolio theory (91G10) Degenerate parabolic equations (35K65) Finite difference methods for initial value and initial-boundary value problems involving PDEs (65M06) Stability and convergence of numerical methods for initial value and initial-boundary value problems involving PDEs (65M12) Optimal stochastic control (93E20)

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Cited In (8)

• Discrete‐time approximation for stochastic optimal control problems under the G‐expectation framework
• A fully nonlinear Feynman-Kac formula with derivatives of arbitrary orders
• Optimal liquidation with dynamic parameter updating: a forward approach
• Numerical Solution of the Incompressible Navier-Stokes Equation by a Deep Branching Algorithm
• Penalty method for portfolio selection with capital gains tax
• A deep branching solver for fully nonlinear partial differential equations
• A monotone scheme for \(\mathrm{G}\)-equations with application to the explicit convergence rate of robust central limit theorem
• A splitting method for fully nonlinear degenerate parabolic PDEs

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