Multi-dimensional BSDE with Oblique Reflection and Optimal Switching

Ying Hu (1) , Shanjian Tang (2)

1 IRMAR - Institut de Recherche Mathématique de Rennes
2 SCHOOL OF MATHEMATICAL SCIENCES - School of Mathematical Sciences

In this paper, we study a multi-dimensional backward stochastic differential equation (BSDE) with oblique reflection, which is a BSDE reflected on the boundary of a special unbounded convex domain along an oblique direction, and which arises naturally in the study of optimal switching problem. The existence of the adapted solution is obtained by the penalization method, the monotone convergence, and the a priori estimations. The uniqueness is obtained by a verification method (the first component of any adapted solution is shown to be the vector value of a switching problem for BSDEs). As applications, we apply the above results to solve the optimal switching problem for stochastic differential equations of functional type, and we give also a probabilistic interpretation of the viscosity solution to a system of variational inequalities.

Mots clés: Backward stochastic differential equations; Oblique reflection; Optimal switching; Variational inequalities

Domaines: Probabilités [math.PR]

Ying Hu, Shanjian Tang. Multi-dimensional BSDE with Oblique Reflection and Optimal Switching. Probability Theory and Related Fields, 2010, 147 (1-2), pp.89-121. ⟨10.1007/s00440-009-0202-1⟩. ⟨hal-00158569v2⟩