We solve Skorokhod's embedding problem for Brownian motion with linear drift (W-t + kappa t)(t >= 0) by means of techniques of stochastic control theory. The search for a stopping time T such that the law of W-T + kappa T coincides with a prescribed law mu possessing the first moment is based on solutions of backward stochastic differential equations of quadratic type. This new approach generalizes an approach by Bass [3] of the classical version of Skorokhod's embedding problem using martingale representation techniques.
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NYU, Stern Sch Business, Dept Technol Operat & Stat, New York, NY 10012 USANYU, Stern Sch Business, Dept Technol Operat & Stat, New York, NY 10012 USA
Lakner, Peter
Liu, Ziran
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NYU, Stern Sch Business, Dept Technol Operat & Stat, New York, NY 10012 USANYU, Stern Sch Business, Dept Technol Operat & Stat, New York, NY 10012 USA
Liu, Ziran
Reed, Josh
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NYU, Stern Sch Business, Dept Technol Operat & Stat, New York, NY 10012 USANYU, Stern Sch Business, Dept Technol Operat & Stat, New York, NY 10012 USA