Malliavin calculus for backward stochastic differential equations and application to numerical solutions

Abstract

In this paper we study backward stochastic differential equations with general terminal value and general random generator. In particular, we do not require the terminal value be given by a forward diffusion equation. The randomness of the generator does not need to be from a forward equation, either. Motivated from applications to numerical simulations, first we obtain the Lp-Hölder continuity of the solution. Then we construct several numerical approximation schemes for backward stochastic differential equations and obtain the rate of convergence of the schemes based on the obtained Lp- Hölder continuity results. The main tool is the Malliavin calculus. © Institute of Mathematical Statistics, 2011.