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

DOI10.1016/J.SPA.2015.07.010MaRDI QIDQ744977zbMATH OpenOpenAlexFDO

Authors Paul Gassiat, Harald Oberhauser, Gonçalo dos Reis

Publication date 12 October 2015

Published in (Search for Journal in Brave)

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

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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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