Nonlinear continuous semimartingales

DOI10.1214/23-EJP1037arXiv2204.07823MaRDI QIDQ6136833FDOQ6136833

Lars Niemann, David Criens

Publication date: 17 January 2024

Published in: Electronic Journal of Probability (Search for Journal in Brave)

Abstract: In this paper we study a family of nonlinear (conditional) expectations that can be understood as a continuous semimartingale with uncertain local characteristics. Here, the differential characteristics are prescribed by a set-valued function that depends on time and path in a non-Markovian way. We provide a dynamic programming principle for the nonlinear expectation and we link the corresponding value function to a variational form of a nonlinear path-dependent partial differential equation. In particular, we establish conditions that allow us to identify the value function as the unique viscosity solution.Furthermore, we prove that the nonlinear expectation solves a nonlinear martingale problem, which confirms our interpretation as a nonlinear semimartingale.

Full work available at URL: https://arxiv.org/abs/2204.07823

zbMATH Keywords

Knightian uncertaintyviscosity solutionnonlinear expectationsublinear expectationsemimartingale characteristicsnonlinear martingale problempath-dependent partial differential equationnonlinear semimartingales

Mathematics Subject Classification ID

Viscosity solutions to PDEs (35D40) Martingales with continuous parameter (60G44) Optimal stochastic control (93E20) General theory of stochastic processes (60G07) Nonlinear processes (e.g., (G)-Brownian motion, (G)-Lévy processes) (60G65)

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