Reflected BSDEs with nonpositive jumps, and controller-and-stopper games

TL;DR

This paper introduces a class of reflected backward stochastic differential equations with nonpositive jumps and upper barriers, establishing their existence, uniqueness, and connection to fully nonlinear variational inequalities, with applications to controller-and-stopper games.

Contribution

It develops a new BSDE framework with nonpositive jumps linked to variational inequalities and provides novel Feynman-Kac formulas for complex stochastic differential games.

Findings

Proved existence and uniqueness of minimal solutions for the BSDEs.

Established a Feynman-Kac type formula for PDEs related to stochastic games.

Provided a dual game representation involving change of measures.

Abstract

We study a class of reflected backward stochastic differential equations with nonpositive jumps and upper barrier. Existence and uniqueness of a minimal solution is proved by a double penalization approach under regularity assumptions on the obstacle. In a suitable regime switching diffusion framework, we show the connection between our class of BSDEs and fully nonlinear variational inequalities. Our BSDE representation provides in particular a Feynman-Kac type formula for PDEs associated to general zero-sum stochastic differential controller-and-stopper games, where control affect both drift and diffusion term, and the diffusion coefficient can be degenerate. Moreover, we state a dual game formula of this BSDE minimal solution involving equivalent change of probability measures, and discount processes. This gives in particular a new representation for zero-sum stochastic differential controller-and-stopper games.