On an Asymptotic Expansion of Forward-Backward SDEs with a Perturbed Driver
ã€€ã€€ This paper presents a mathematical validity for an asymptotic expansion scheme of the solutions to the forwardbackward stochastic differential equations (FBSDEs) in terms of a perturbed driver in the BSDE and a small diffusion in the FSDE. This computational scheme was proposed by Fujii and Takahashi (2012a), which has been successfully employed to solve the derivatives and optimal portfolio problems in Fujii and Takahashi (2012b,c) and Fujii et al. (2012). In particular, we represent the coefficients up to an arbitrary order expansion of the BSDE by the solution to a system of the associated BSDEs with the FSDE, and obtain the error estimate of the expansion with respect to the driver perturbation. Accordingly, we show a concrete representation for each expansion coefficient of the volatility component, that is the martingale integrand in the BSDE. Then, we apply our proposed FSDE expansion formula with its precise error estimate to the BSDE expansion coefficients to finally obtain the total residual estimate.
|Date of creation:||Sep 2013|
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- Masaaki Fujii & Akihiko Takahashi, 2012. "Perturbative Expansion Technique for Non-linear FBSDEs with Interacting Particle Method," Papers 1204.2638, arXiv.org, revised Apr 2012.
- Masaaki Fujii & Seisho Sato & Akihiko Takahashi, 2012. "An FBSDE Approach to American Option Pricing with an Interacting Particle Method," Papers 1211.5867, arXiv.org.
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