A transformation method to study the solvability of fully coupled FBSDEs

Stefan Ankirchner (1) , Alexander Fromm (1) , Julian Wendt (1)

1 Friedrich-Schiller-Universität = Friedrich Schiller University Jena [Jena, Germany]

We consider fully coupled forward-backward stochastic differential equations (FBSDEs), where all function parameters are Lipschitz continuous, the terminal condition is monotone and the diffusion coeffcient of the forward part depends monotonically on z, the control process component of the backward part. We show that there exists a class of linear transformations turning the FBSDE into an auxiliary FBSDE for which the Lipschitz constant of the forward diffusion coeffcient w.r.t. z is smaller than the inverse of the Lipschitz constant of the terminal condition w.r.t. the forward component x. The latter condition allows to verify existence of a global solution by analyzing the spatial derivative of the decoupling field. This is useful since by applying the inverse linear transformation to a solution of the auxiliary FBSDE we obtain a solution to the original one. We illustrate with several examples how linear transformations, combined with an analysis of the decoupling field's gradient, can be used for proving global solvability of FBSDEs.

Mots clés: Fully coupled forward-backward stochastic differential equations; decoupling field; linear transformation; global solvability; stochastic control

Domaines: Probabilités [math.PR]

Stefan Ankirchner, Alexander Fromm, Julian Wendt. A transformation method to study the solvability of fully coupled FBSDEs. Stochastics: An International Journal of Probability and Stochastic Processes, 2022, 94 (1), pp.1-25. ⟨10.1080/17442508.2021.1903466⟩. ⟨hal-02351469v2⟩