The obstacle problem for semilinear parabolic partial integro-differential equations

2013/07/02 by Anis Matoussi, Matoussi, Anis, Wissal Sabbagh +3 · 1 citation
Mathematics · #35R60 #60G46 #60H15 #FOS: Mathematics #Probability (math.PR) #math.PR #msc:35R60 #msc:60G46 #msc:60H15

paper · pdf · doi:10.48550/arxiv.1307.0875

31 pages

arxiv created 2014/02/25 · arxiv updated 2014/02/26

Abstract

This paper presents a probabilistic interpretation for the weak Sobolev solution of the obstacle problem for semilinear parabolic partial integro-differential equations (PIDEs). The results of Leandre (1985) concerning the homeomorphic property for the solution of SDEs with jumps are used to construct random test functions for the variational equation for such PIDEs. This results in the natural connection with the associated Reflected Backward Stochastic Differential Equations with jumps (RBSDEs), namely Feynman Kac's formula for the solution of the PIDEs. Moreover it gives an application to the pricing and hedging of contingent claims with constraints in the wealth or portfolio processes in financial markets including jumps.

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