Mean-field stochastic differential equations and associated PDEs

TL;DR

This paper studies mean-field stochastic differential equations (McKean-Vlasov equations) with coefficients depending on the solution and its law, characterizing associated PDEs through derivatives with respect to probability measures.

Contribution

It introduces a novel approach to analyze derivatives of solutions with respect to probability laws, leading to a PDE characterization of the value function.

Findings

Established flow property for solutions with random initial conditions

Characterized the value function as a unique classical solution of a non-local PDE

Extended derivative concepts to second order for probability measures

Abstract

In this paper we consider a mean-field stochastic differential equation, also called Mc Kean-Vlasov equation, with initial data $(t,x)\in[0,T]\times R^d,$ which coefficients depend on both the solution $X^{t,x}_s$ but also its law. By considering square integrable random variables $\xi$ as initial condition for this equation, we can easily show the flow property of the solution $X^{t,\xi}_s$ of this new equation. Associating it with a process $X^{t,x,P_\xi}_s$ which coincides with $X^{t,\xi}_s$, when one substitutes $\xi$ for $x$, but which has the advantage to depend only on the law $P_\xi$ of $\xi$, we characterise the function $V(t,x,P_\xi)=E[\Phi(X^{t,x,P_\xi}_T,P_{X^{t,\xi}_T})]$ under appropriate regularity conditions on the coefficients of the stochastic differential equation as the unique classical solution of a non local PDE of mean-field type, involving the first and second order derivatives of $V$ with respect to its space variable and the probability law. The proof bases heavily on a preliminary study of the first and second order derivatives of the solution of the mean-field stochastic differential equation with respect to the probability law and a corresponding It\^{o} formula. In our approach we use the notion of derivative with respect to a square integrable probability measure introduced in \cite{PL} and we extend it in a direct way to second order derivatives.