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Applications of backward stochastic differential equations to insurance and finance

Author

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  • Łukasz Delong

    (Szkoła Główna Handlowa w Warszawie)

Abstract

In this paper we deal with backward stochastic differential equations and give examples of their applications to insurance and finance. There are two major fields of applications. The first area concerns pricing and risk measures, the second deals with optimal control problems and optimization. Our aim is to show that backward stochastic differential equations,despite its mathematical complexity, are intuitive and can help in solving real life problems. Keywords- backward stochastic differential equation, Choquet expectation, f-expectation, market consistent valuation, quadratic hedging, unit-linked products.

Suggested Citation

  • Łukasz Delong, 2010. "Applications of backward stochastic differential equations to insurance and finance," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 21, pages 11-26.
    • Handle: RePEc:sgh:annals:i:21:y:2010:p:11-26
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    Cited by:

    1. Zhou, Qing & Ren, Yong, 2012. "Reflected backward stochastic differential equations with time delayed generators," Statistics & Probability Letters, Elsevier, vol. 82(5), pages 979-990.
    2. Frédéric Sart, 2016. "On the hedging of liabilities with an endogenous profit sharing mechanism," Post-Print hal-01574949, HAL.
    3. Lukasz Delong, 2010. "Applications of time-delayed backward stochastic differential equations to pricing, hedging and portfolio management," Papers 1005.4417, arXiv.org, revised Jan 2011.
    4. Rodwell Kufakunesu & Calisto Guambe & Lesedi Mabitsela, 2018. "Risk-based optimal portfolio of an insurer with regime switching and noisy memory," Papers 1808.04604, arXiv.org, revised Mar 2019.

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