Root's barrier, viscosity solutions of obstacle problems and reflected FBSDEs

DOI10.1016/J.SPA.2015.07.010MaRDI QIDQ744977zbMATHOpenAlexFDO

Authors Paul Gassiat, Harald Oberhauser, Gonçalo dos Reis

Publication date 12 October 2015

Published in Stochastic Processes and their Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1301.3798

zbMATH Keywords

viscosity solutionsobstacle problemsSkorokhod embedding problemreflected forward-backward stochastic differential equationsRoot barriers

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Viscosity solutions to PDEs (35D40) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: We revisit work of Rost, Dupire and Cox--Wang on connections between Root's solution of the Skorokhod embedding problem and obstacle problems. We develop an approach based on viscosity sub- and supersolutions and an accompanying comparison principle. This gives a complete characterization of (reversed) Root barriers and leads to new proofs of existence as well as minimality of such barrier solutions by pure PDE methods. The approach is self-contained and general enough to cover martingale diffusions with degenerate elliptic or time-dependent volatility; it also provides insights about the dynamics of general Skorokhod embeddings.

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Cited in

(20)

• Root's barrier: construction, optimality and applications to variance options
• PDE methods for optimal Skorokhod embeddings
• A free boundary characterisation of the root barrier for Markov processes
• The root solution to the multi-marginal embedding problem: an optimal stopping and time-reversal approach
• On the Root Solution to the Skorokhod Embedding Problem Given Full Marginals
• Finite, integrable and bounded time embeddings for diffusions
• Integral equations for Rost's reversed barriers: existence and uniqueness results
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• Tightness and duality of martingale transport on the Skorokhod space
• On the continuity of the Root barrier
• Minimal Root's embeddings for general starting and target distributions

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