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Maximum Principle for Markov Regime-Switching Forward–Backward Stochastic Control System with Jumps and Relation to Dynamic Programming

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  • Zhongyang Sun

    (Sun Yat-sen University)

  • Junyi Guo

    (Nankai University)

  • Xin Zhang

    (Southeast University)

Abstract

This paper presents a sufficient stochastic maximum principle for a stochastic optimal control problem of Markov regime-switching forward–backward stochastic differential equations with jumps. The relationship between the stochastic maximum principle and the dynamic programming principle in a Markovian case is also established. Finally, applications of the main results to a recursive utility portfolio optimization problem in a financial market are discussed.

Suggested Citation

  • Zhongyang Sun & Junyi Guo & Xin Zhang, 2018. "Maximum Principle for Markov Regime-Switching Forward–Backward Stochastic Control System with Jumps and Relation to Dynamic Programming," Journal of Optimization Theory and Applications, Springer, vol. 176(2), pages 319-350, February.
    • Handle: RePEc:spr:joptap:v:176:y:2018:i:2:d:10.1007_s10957-017-1068-5
    DOI: 10.1007/s10957-017-1068-5
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    References listed on IDEAS

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    1. Duffie, Darrell & Epstein, Larry G, 1992. "Stochastic Differential Utility," Econometrica, Econometric Society, vol. 60(2), pages 353-394, March.
    2. N. El Karoui & S. Peng & M. C. Quenez, 1997. "Backward Stochastic Differential Equations in Finance," Mathematical Finance, Wiley Blackwell, vol. 7(1), pages 1-71, January.
    3. N. C. Framstad & B. Øksendal & A. Sulem, 2004. "Sufficient Stochastic Maximum Principle for the Optimal Control of Jump Diffusions and Applications to Finance," Journal of Optimization Theory and Applications, Springer, vol. 121(1), pages 77-98, April.
    4. Samuel N. Cohen & Robert J. Elliott, 2008. "Comparisons for backward stochastic differential equations on Markov chains and related no-arbitrage conditions," Papers 0810.0055, arXiv.org, revised Jan 2010.
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    Cited by:

    1. Zhongyang Sun & Xianping Guo, 2019. "Equilibrium for a Time-Inconsistent Stochastic Linear–Quadratic Control System with Jumps and Its Application to the Mean-Variance Problem," Journal of Optimization Theory and Applications, Springer, vol. 181(2), pages 383-410, May.

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