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Reflected BSDEs when the obstacle is not right-continuous and optimal stopping

Author

Listed:
  • Miryana Grigorova

    (Institut für Mathematik [Humboldt] - HU Berlin - Humboldt-Universität zu Berlin = Humboldt University of Berlin = Université Humboldt de Berlin)

  • Peter Imkeller

    (Institut für Mathematik [Humboldt] - HU Berlin - Humboldt-Universität zu Berlin = Humboldt University of Berlin = Université Humboldt de Berlin)

  • Elias Offen

    (UB - University of Botswana)

  • Youssef Ouknine

    (UCA - Université Cadi Ayyad [Marrakech])

  • Marie-Claire Quenez

    (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique)

Abstract

In the first part of the paper, we study reflected backward stochastic differential equations (RBSDEs) with lower obstacle which is assumed to be right upper-semicontinuous but not necessarily right-continuous. We prove existence and uniqueness of the solutions to such RBSDEs in appropriate Banach spaces. The result is established by using some tools from the general theory of processes such as Mertens decomposition of optional strong (but not necessarily right-continuous) supermartingales, some tools from optimal stopping theory, as well as an appropriate generalization of Itô's formula due to Gal'chouk and Lenglart. In the second part of the paper, we provide some links between the RBSDE studied in the first part and an optimal stopping problem in which the risk of a financial position $\xi$ is assessed by an $f$-conditional expectation $\mathcal{E}^f(\cdot)$ (where $f$ is a Lipschitz driver). We characterize the "value function" of the problem in terms of the solution to our RBSDE. Under an additional assumption of left upper-semicontinuity on $\xi$, we show the existence of an optimal stopping time. We also provide a generalization of Mertens decomposition to the case of strong $\mathcal{E}^f$-supermartingales.

Suggested Citation

  • Miryana Grigorova & Peter Imkeller & Elias Offen & Youssef Ouknine & Marie-Claire Quenez, 2017. "Reflected BSDEs when the obstacle is not right-continuous and optimal stopping," Post-Print hal-01141801, HAL.
  • Handle: RePEc:hal:journl:hal-01141801
    Note: View the original document on HAL open archive server: https://hal.science/hal-01141801v2
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    References listed on IDEAS

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    1. Erhan Bayraktar & Ioannis Karatzas & Song Yao, 2009. "Optimal Stopping for Dynamic Convex Risk Measures," Papers 0909.4948, arXiv.org, revised Nov 2009.
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    Cited by:

    1. Hilbert, Astrid & Jarni, Imane & Ouknine, Youssef, 2020. "On reflected stochastic differential equations driven by regulated semimartingales," Statistics & Probability Letters, Elsevier, vol. 167(C).
    2. Hanwu Li & Guomin Liu, 2024. "Multi-dimensional Reflected Backward Stochastic Differential Equations Driven by G-Brownian Motion with Diagonal Generators," Journal of Theoretical Probability, Springer, vol. 37(3), pages 2615-2645, September.
    3. Marzougue, Mohamed, 2020. "A note on optional Snell envelopes and reflected backward SDEs," Statistics & Probability Letters, Elsevier, vol. 165(C).
    4. Miryana Grigorova & Marie-Claire Quenez & Agnès Sulem, 2019. "European options in a non-linear incomplete market model with default," Working Papers hal-02025833, HAL.
    5. Marzougue, Mohamed, 2021. "Monotonic limit theorem for BSDEs with regulated trajectories," Statistics & Probability Letters, Elsevier, vol. 176(C).
    6. Grigorova, Miryana & Quenez, Marie-Claire & Sulem, Agnès, 2021. "American options in a non-linear incomplete market model with default," Stochastic Processes and their Applications, Elsevier, vol. 142(C), pages 479-512.
    7. Grigorova, Miryana & Imkeller, Peter & Ouknine, Youssef & Quenez, Marie-Claire, 2020. "Optimal stopping with f-expectations: The irregular case," Stochastic Processes and their Applications, Elsevier, vol. 130(3), pages 1258-1288.
    8. Libo Li & Ruyi Liu & Marek Rutkowski, 2022. "Vulnerable European and American Options in a Market Model with Optional Hazard Process," Papers 2212.12860, arXiv.org.
    9. Ihsan Arharas & Siham Bouhadou & Youssef Ouknine, 2022. "Doubly Reflected Backward Stochastic Differential Equations in the Predictable Setting," Journal of Theoretical Probability, Springer, vol. 35(1), pages 115-141, March.
    10. Libo Li & Ruyi Liu & Marek Rutkowski, 2022. "Well-posedness and penalization schemes for generalized BSDEs and reflected generalized BSDEs," Papers 2212.12854, arXiv.org.
    11. Miryana Grigorova & Marie-Claire Quenez & Agnès Sulem, 2020. "European options in a non-linear incomplete market model with default," Post-Print hal-02025833, HAL.
    12. Miryana Grigorova & Marie-Claire Quenez & Agnès Sulem, 2019. "American options in a non-linear incomplete market model with default," Working Papers hal-02025835, HAL.
    13. Klimsiak, Tomasz, 2021. "Non-semimartingale solutions of reflected BSDEs and applications to Dynkin games," Stochastic Processes and their Applications, Elsevier, vol. 134(C), pages 208-239.
    14. Grigorova, Miryana & Quenez, Marie-Claire & Sulem, Agnès, 2019. "Superhedging prices of European and American options in a non-linear incomplete market with default," Center for Mathematical Economics Working Papers 607, Center for Mathematical Economics, Bielefeld University.
    15. Abdelkarim Oualaid & Khaled Bahlali & Youssef Ouknine, 2023. "Reflected Backward Stochastic Differential Equations Associated to Jump Markov Processes and Application to Partial Differential Equations," Journal of Theoretical Probability, Springer, vol. 36(3), pages 1400-1436, September.
    16. Imane Jarni & Youssef Ouknine, 2021. "On Reflection with Two-Sided Jumps," Journal of Theoretical Probability, Springer, vol. 34(4), pages 1811-1830, December.

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