The Skorokhod embedding problem for inhomogeneous diffusions

DOI10.1214/19-AIHP1012MaRDI QIDQ2227461zbMATH OpenOpenAlexFDO

Authors Stefan Ankirchner, Stefan Engelhardt, Alexander Fromm, Gonçalo dos Reis

Publication date 15 February 2021

Published in Annales de l'Institut Henri Poincaré. Probabilités et Statistiques (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1810.05098, https://projecteuclid.org/euclid.aihp/1593137304

zbMATH Keywords

Brownian motiondecoupling fieldsforward-backward stochastic differential equationfunctional dependenceLevy processesSkorokhod embedding

Mathematics Subject Classification ID

Stopping times; optimal stopping problems; gambling theory (60G40) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Continuous-time Markov processes on general state spaces (60J25)

Abstract: We solve the Skorokhod embedding problem for a class of stochastic processes satisfying an inhomogeneous stochastic differential equation (SDE) of the form $d{A}_t=mu(t,A_t)dt+sigma(t,A_t)d{W}_t$. We provide sufficient conditions guaranteeing that for a given probability measure $u$ on $mathbbR$ there exists a bounded stopping time $au$ and a real $a$ such that the solution $(A_t)$ of the SDE with initial value $a$ satisfies $A_{a}usimu$. We hereby distinguish the cases where $(A_t)$ is a solution of the SDE in a weak or strong sense. Our construction of embedding stopping times is based on a solution of a fully coupled forward-backward SDE. We use the so-called method of decoupling fields for verifying that the FBSDE has a unique solution. Finally, we sketch an algorithm for putting our theoretical construction into practice and illustrate it with a numerical experiment.

Review text

In this paper, the Skorokhod embedding problem (SEP) for a class of stochastic processes satisfying an inhomogeneous stochastic differential equation (SDE) of the form \(dA_t = \mu(t,A_t ) dt + \sigma(t,A_t ) dW_t\) is solved. The authors establish sufficient conditions on \(\mu\), \(\sigma\) and \(\nu\) guaranteeing the existence of a stopping time \(\tau\) and a real number \(a\) such that the solution of the SDE, in a weak or strong sense, with initial condition \(A_0 = a\) satisfies \(A_\tau\sim \nu\). The cases where \((A_t )\) is a solution of the SDE in a weak or strong sense are distinguished. The construction of embedding stopping times is based on a solution of a fully coupled forward-backward SDE. The so-called method of decoupling fields (see [\textit{J. Ma} et al., Stochastic Processes Appl. 122, No. 12, 3980--4004 (2012; Zbl 1260.60123); \textit{A. Fromm}, Theory and applications of decoupling fields for forward-backward stochastic differential equations. Berlin: Humboldt-Universität (PhD Thesis) (2015)]) for verifying that the forward-backward stochastic differential equation (FBSDE) has a unique solution is applied. An algorithm for putting the theoretical construction into practice and illustrate it with a numerical experiment is described.

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Cited in

(11)

• Discretisation and duality of optimal Skorokhod embedding problems
• On Skorokhod embeddings and Poisson equations
• An optimal Skorokhod embedding for diffusions
• Numerical approximation of irregular SDEs via Skorokhod embeddings
• Skorokhod Embedding by Randomized Hitting Times
• Statistical Skorohod embedding problem: optimality and asymptotic normality
• On the continuity of the Root barrier
• On the Root Solution to the Skorokhod Embedding Problem Given Full Marginals
• Conformal Skorokhod embeddings and related extremal problems
• An FBSDE approach to the Skorokhod embedding problem for Gaussian processes with non-linear drift
• The Skorokhod embedding problem and its offspring

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