Note on Viscosity Solution of Path-Dependent PDE and G-Martingales

Details Note on Viscosity Solution of Path-Dependent PDE and G-Martingales Note on Viscosity Solution of Path-Dependent PDE and G-Martingales

2011-06-06

arxiv.org/abs/1106.1144v2

Mathematics

Probability

Scientific paper

In the 2nd version of this note we introduce the notion of viscosity solution for a type of fully nonlinear parabolic path-dependent partial differential equations (P-PDE). We then prove the comparison theorem (or maximum principle) of this new type of equation which is the key property of this framework. To overcome the well-known difficulty of non-compactness of the space of paths for the maximization, we have introduced a new approach, called left frozen maximization approach which permits us to obtain the comparison principle for smooth as well as viscosity solutions of path-dependent PDE. A solution of a backward stochastic differential equation and a G-martingale under a G-expectation are typical examples of such type of solutions of P-PDE. The maximum principle for viscosity solutions of classical PDE, called state dependent PDE, is a special case.

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