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Backward SDEs

Author

Listed:
  • Jakša Cvitanić

    (California Institute of Technology
    EDHEC Business School)

  • Jianfeng Zhang

    (University of Southern California)

Abstract

In this chapter we first introduce Backward SDEs by means of a popular application, option pricing and hedging. We show how these problems lead naturally to BSDEs, and then, we provide the basic theory. We present the important Comparison Theorem for BSDEs. Existence and uniqueness are first shown under Lipschitz and square-integrability conditions. Then, the case of quadratic growth is studied, often encountered in applications. In Markovian models a connection to PDEs is established, which can be useful for numerical solutions.

Suggested Citation

Handle: RePEc:spr:sprfcp:978-3-642-14200-0_9
DOI: 10.1007/978-3-642-14200-0_9
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