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Analytical Approximations of BSDEs with Nonsmooth Driver
2015
SIAM Journal on Financial Mathematics
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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
doi:10.1137/14100021x
fatcat:x3fr5zosp5gf5o5qcpktnluup4