Nonlinear Continuous Semimartingales

Abstract

In this paper we study a family of nonlinear (conditional) expectations that can be understood as a continuous semimartingale with uncertain local characteristics. Here, the differential characteristics are prescribed by a set-valued function that depends on time and path in a non-Markovian way. We provide a dynamic programming principle for the nonlinear expectation and we link the corresponding value function to a variational form of a nonlinear path-dependent partial differential equation. In particular, we establish conditions that allow us to identify the value function as the unique viscosity solution. Furthermore, we prove that the nonlinear expectation solves a nonlinear martingale problem, which confirms our interpretation as a nonlinear semimartingale.