Mathematics > Probability
[Submitted on 2 Oct 2014 (v1), last revised 8 Dec 2014 (this version, v2)]
Title:BSDEs driven by a multi-dimensional martingale and their applications to market models with funding costs
View PDFAbstract:We establish some well-posedness and comparison results for BSDEs driven by one- and multi-dimensional martingales. On the one hand, our approach is largely motivated by results and methods developed in Carbone et al. (2008) and El Karoui and Huang (1997). On the other hand, our results are also motivated by the recent developments in arbitrage pricing theory under funding costs and collateralization. A new version of the comparison theorem for BSDEs driven by a multi-dimensional martingale is established and applied to the pricing and hedging BSDEs studied in Bielecki and Rutkowski (2014) and Nie and Rutkowski (2014). This allows us to obtain the existence and uniqueness results for unilateral prices and to demonstrate the existence of no-arbitrage bounds for a collateralized contract when both agents have non-negative initial endowments.
Submission history
From: Marek Rutkowski [view email][v1] Thu, 2 Oct 2014 04:17:16 UTC (28 KB)
[v2] Mon, 8 Dec 2014 05:28:51 UTC (28 KB)
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