Abstract
In this chapter we first introduce Backward SDEs by means of a popular application, option pricing and hedging. We show how these problems lead naturally to BSDEs, and then, we provide the basic theory. We present the important Comparison Theorem for BSDEs. Existence and uniqueness are first shown under Lipschitz and square-integrability conditions. Then, the case of quadratic growth is studied, often encountered in applications. In Markovian models a connection to PDEs is established, which can be useful for numerical solutions.
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Cvitanić, J., Zhang, J. (2013). Backward SDEs. In: Contract Theory in Continuous-Time Models. Springer Finance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-14200-0_9
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DOI: https://doi.org/10.1007/978-3-642-14200-0_9
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-14199-7
Online ISBN: 978-3-642-14200-0
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