Analytical Approximations of BSDEs with Nonsmooth Driver

Emmanuel Gobet, Stefano Pagliarani
2015 SIAM Journal on Financial Mathematics  
We provide and analyse analytical approximations of BSDEs in the limit of small nonlinearity and short time, in the case of non-smooth drivers. We identify the first and the second order approximations within this asymptotics and consider two topical financial applications: the two interest rates problem and the Funding Value Adjustment. In high dimensional diffusion setting, we show how to compute explicitly the first order formula by taking advantage of recent proxy techniques. Numerical
more » ... up to dimension 10 illustrate the efficiency of the numerical schemes.
doi:10.1137/14100021x fatcat:x3fr5zosp5gf5o5qcpktnluup4