Splitting multidimensional BSDEs and finding local equilibria

We introduce a new notion of local solution of backward stochastic differential equations (BSDEs) and prove that multidimensional quadratic BSDEs are locally but not globally solvable. Applied in a financial context on optimal investment, our results show that there exist local but no global equilibria when agents take both the absolute and the relative performance compared to their peers into account.

MoreLess

Year of publication:	2014
Authors:	Frei, Christoph
Published in:	Stochastic Processes and their Applications. - Elsevier, ISSN 0304-4149. - Vol. 124.2014, 8, p. 2654-2671
Publisher:	Elsevier
Subject:	Multidimensional BSDE \| Quadratic generator \| Splitting BSDEs \| Relative performance \| Local equilibrium

More details

Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010777090