Cohen and Elliott (2010) introduced the backward stochastic difference equations (BSDEs) on spaces related to discrete time, finite state processes. Motivated by obtaining the explicit solution of a linear BSDE under their framework, we develop a new type of Girsanov transformation in this paper.

In this paper, we study a functional fully coupled forward–backward stochastic differential equation (FBSDE). For this functional FBSDE, the classical Lipschitz and monotonicity conditions which guarantee the existence and uniqueness of the solution to FBSDE are no longer applicable. To...

We study a continuous-time, finite horizon, stochastic partially reversible investment problem for a firm producing a single good in a market with frictions. The production capacity is modeled as a one-dimensional, time-homogeneous, linear diffusion controlled by a bounded variation process...