WIAS Preprint No. 1160, (2006)

Time discretization and Markovian iteration for coupled FBSDEs



Authors

  • Bender, Christian
  • Zhang, Jianfeng

2010 Mathematics Subject Classification

  • 65C30 60H10 60H30 65C05

Keywords

  • forward backward SDE, numerics, time discretization, Monte Carlo simulation

Abstract

In this paper we lay the foundation for a numerical algorithm to simulate high-dimensional coupled FBSDEs under weak coupling or monotonicity conditions. In particular we prove convergence of a time discretization and a Markovian iteration. The iteration differs from standard Picard iterations for FBSDEs in that the dimension of the underlying Markovian process does not increase with the number of iterations. This feature seems to be indispensable for an efficient iterative scheme from a numerical point of view. We finally suggest a fully explicit numerical algorithm and present some numerical examples with up to 10-dimensional state space.

Appeared in

  • Ann. Appl. Probab., 18 (2008) pp. 143--177.

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