Global Adapted Solution of One-Dimensional Backward Stochastic Riccati Equations, with Application to the Mean- Variance Hedging

Kohlmann, Michael; Tang, Shanjian

Global Adapted Solution of One-Dimensional Backward Stochastic Riccati Equations, with Application to the Mean- Variance Hedging

Dateien

dp00_26.pdfGröße: 379.56 KBDownloads: 225

Datum

2000

Autor:innen

Kohlmann, Michael

Tang, Shanjian

Open Access-Veröffentlichung

Open Access Green

Sammlungen

Mathematik und Statistik

Publikationstyp

Working Paper/Technical Report

Publikationsstatus

Published

Zusammenfassung

We obtain the global existence and uniqueness result for a one-dimensional back- ward stochastic Riccati equation, whose generator contains a quadratic term of L (the second unknown component). This solves the one-dimensional case of Bismut- Peng's problem which was initially proposed by Bismut (1978) in the Springer yellow book LNM 649. We use an approximation technique by constructing a sequence of monotone generators and then passing to the limit. We make full use of the special structure of the underlying Riccati equation. The singular case is also discussed. Finally, the above results are applied to solve the mean-variance hedging problem with stochastic market conditions.

Fachgebiet (DDC)

510 Mathematik

Schlagwörter

backward stochastic Ricatti equation, stochastic linear-quadratic control problem, approximation, mean-variance hedging, Feynmann-Kac formula

Zitieren

ISO 690

KOHLMANN, Michael, Shanjian TANG, 2000. Global Adapted Solution of One-Dimensional Backward Stochastic Riccati Equations, with Application to the Mean- Variance Hedging

BibTex

@techreport{Kohlmann2000Globa-750,
  year={2000},
  series={CoFE-Diskussionspapiere / Zentrum für Finanzen und Ökonometrie},
  title={Global Adapted Solution of One-Dimensional Backward Stochastic Riccati Equations, with Application to the Mean- Variance Hedging},
  number={2000/26},
  author={Kohlmann, Michael and Tang, Shanjian}
}

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Universitätsbibliographie

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