Backward stochastic differential equations with regime-switching and sublinear expectations
arXiv:2112.02375 · doi:10.1016/j.spa.2022.02.012
Abstract
This paper introduces a backward stochastic differential equation driven by both Brownian motion and a Markov chain (BSDEBM). Regime-switching is also incorporated through its driver. The existence and uniqueness of the solution of the BSDEBM are proved. A comparison theorem is also derived. Filtration consistent sublinear expectations are defined and characterized as solutions to the BSDEBM. The bid and ask prices are then represented using sublinear expectations.
arXiv comment19 pages
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