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

DOI10.1016/J.SPA.2015.07.010zbMATH Open1335.60059arXiv1301.3798OpenAlexW1589034765MaRDI QIDQ744977FDOQ744977

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)

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.

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

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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)

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Cited In (20)

• The geometry of multi-marginal Skorokhod embedding
• A conformal Skorokhod embedding
• From optimal stopping boundaries to Rost's reversed barriers and the Skorokhod embedding
• The root solution to the multi-marginal embedding problem: an optimal stopping and time-reversal approach
• Minimal Root's embeddings for general starting and target distributions
• The Stefan problem and free targets of optimal Brownian martingale transport
• An explicit martingale version of the one-dimensional Brenier theorem
• A free boundary characterisation of the root barrier for Markov processes
• Root's barrier: construction, optimality and applications to variance options
• Model-independent pricing with insider information: a skorokhod embedding approach
• Integral equations for Rost's reversed barriers: existence and uniqueness results
• An explicit martingale version of the one-dimensional Brenier's theorem with full marginals constraint
• Finite, integrable and bounded time embeddings for diffusions
• Optimal transport and Skorokhod embedding
• PDE methods for optimal Skorokhod embeddings
• On the Root Solution to the Skorokhod Embedding Problem Given Full Marginals
• An integral equation for Root's barrier and the generation of Brownian increments
• Tightness and duality of martingale transport on the Skorokhod space
• On the continuity of the root barrier
• Supermartingale Brenier's theorem with full-marginals constraint

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