Frei, Christoph - In: Stochastic Processes and their Applications 124 (2014) 8, pp. 2654-2671
We introduce a new notion of local solution of backward stochastic differential equations (BSDEs) and prove that multidimensional quadratic BSDEs are locally but not globally solvable. Applied in a financial context on optimal investment, our results show that there exist local but no global...