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A maximum principle for forward-backward stochastic Volterra integral equations and applications in finance

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  • Tianxiao Wang
  • Yufeng Shi

Abstract

This paper formulates and studies a stochastic maximum principle for forward-backward stochastic Volterra integral equations (FBSVIEs in short), while the control area is assumed to be convex. Then a linear quadratic (LQ in short) problem for backward stochastic Volterra integral equations (BSVIEs in short) is present to illustrate the aforementioned optimal control problem. Motivated by the technical skills in solving above problem, a more convenient and briefer method for the unique solvability of M-solution for BSVIEs is proposed. At last, we will investigate a risk minimization problem by means of the maximum principle for FBSVIEs. Closed-form optimal portfolio is obtained in some special cases.

Suggested Citation

  • Tianxiao Wang & Yufeng Shi, 2010. "A maximum principle for forward-backward stochastic Volterra integral equations and applications in finance," Papers 1004.2206, arXiv.org.
    • Handle: RePEc:arx:papers:1004.2206
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