The Skorokhod embedding problem for inhomogeneous diffusions

Stefan Ankirchner, Stefan Engelhardt, Alexander Fromm, Goncalo dos Reis

Research output: Contribution to journalArticlepeer-review

Abstract

We solve the Skorokhod embedding problem for a class of stochastic processes satisfying an inhomogeneous stochastic differential equation (SDE) of the form $d A_t =\mu (t, A_t) d t + \sigma(t, A_t) d W_t$. We provide sufficient conditions guaranteeing that for a given probability measure $\nu$ on $\mathbb{R}$ there exists a bounded stopping time $\tau$ and a real number $a$ such that the solution $(A_t)$ of the SDE with initial value $A_0=a$ satisfies $A_\tau \sim \nu$. We hereby distinguish the cases where $(A_t)$ is a solution of the SDE in a weak or strong sense. Our construction of embedding stopping times is based on a solution of a fully coupled forward-backward SDE. We use the so-called method of decoupling fields for verifying that the FBSDE has a unique solution. Finally, we sketch an algorithm for putting our theoretical construction into practice and illustrate it with a numerical experiment.
Original languageEnglish
Pages (from-to)1606-1640
Number of pages39
JournalAnnales de l'Institut Henri Poincaré, Probabilités et Statistiques
Volume56
Issue number3
DOIs
Publication statusPublished - 26 Jun 2020

Keywords

  • math.PR

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