BSDEs with singular terminal condition and control problems with constraints

Abstract

We provide a probabilistic solution of a not necessarily Markovian control problem with a state constraint by means of a Backward Stochastic Differential Equation (BSDE). The novelty of our solution approach is that the BSDE possesses a singular terminal condition. We prove that a solution of the BSDE exists, thus partly generalizing existence results obtained by Popier in [7] and [8]. We perform a verification and discuss special cases for which the control problem has explicit solutions.