Article ID: | iaor2003372 |
Country: | United States |
Volume: | 14 |
Issue: | 2 |
Start Page Number: | 113 |
End Page Number: | 138 |
Publication Date: | Apr 2001 |
Journal: | Journal of Applied Mathematics and Stochastic Analysis |
Authors: | Ma Jin, Cvitani Jaka |
Keywords: | systems, control, calculus of variations, game theory, optimization |
In this paper we study a class of forward–backward stochastic differential equations with reflecting boundary conditions (FBSDER for short). More precisely, we consider the case in which the forward component of the FBSDER is restricted to a fixed, convex region, and the backward component will stay, at each fixed time, in a convex region that may depend on time and is possibly random. The solvability of such FBSDER is studied in a fairly general way. We also prove that if the coefficients are all deterministic and the backward equation is one-dimensional, then the adapted solution of such FBSDER will give the viscosity solution of a quasilinear variational inequality (obstacle problem) with a Neumann boundary condition. As an application, we study how the solvability of FBSDERs is related to the solvability of an American game option.