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Adding constraints to BSDEs with jumps: an alternative tomultidimensional reflections

Published online by Cambridge University Press:  01 July 2014

Romuald Elie
Affiliation:
CEREMADE, CNRS, UMR 7534, Université Paris-Dauphine, Place du maréchal de Lattre de Tassigny, 75016 Paris, France. [email protected],[email protected]
Idris Kharroubi
Affiliation:
CEREMADE, CNRS, UMR 7534, Université Paris-Dauphine, Place du maréchal de Lattre de Tassigny, 75016 Paris, France. [email protected],[email protected]
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Abstract

This paper is dedicated to the analysis of backward stochastic differential equations(BSDEs) with jumps, subject to an additional global constraint involving all thecomponents of the solution. We study the existence and uniqueness of a minimal solutionfor these so-called constrained BSDEs with jumps via a penalizationprocedure. This new type of BSDE offers a nice and practical unifying framework to thenotions of constrained BSDEs presented in [S. Peng and M. Xu, Preprint.(2007)] and BSDEs with constrained jumps introduced in [I. Kharroubi, J. Ma, H.Pham and J. Zhang, Ann. Probab. 38 (2008) 794–840]. Moreremarkably, the solution of a multidimensional Brownian reflected BSDE studied in [Y. Huand S. Tang, Probab. Theory Relat. Fields 147 (2010) 89–121]and [S. Hamadène and J. Zhang, Stoch. Proc. Appl. 120 (2010)403–426] can also be represented via a well chosen one-dimensionalconstrained BSDE with jumps. This last result is very promising from a numerical point ofview for the resolution of high dimensional optimal switching problems and more generallyfor systems of coupled variational inequalities.

Type
Research Article
Copyright
© EDP Sciences, SMAI 2014

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