BSDEs driven by cylindrical martingales with application to approximate hedging in bond markets
arXiv:1806.04025 · doi:10.1007/s13160-020-00442-y
Abstract
We consider Lipschitz-type backward stochastic differential equations (BSDEs) driven by cylindrical martingales on the space of continuous functions. We show the existence and uniqueness of the solution of such infinite-dimensional BSDEs and prove that the sequence of solutions of corresponding finite-dimensional BSDEs approximates the original solution. We also consider the hedging problem in bond markets and prove that, for an approximately attainable contingent claim, the sequence of locally risk-minimizing strategies based on small markets converges to the generalized hedging strategy.
27 pages