Backward Stochastic Differential Equations with Nonlinear Expectation Reflection

Abstract

In this paper, we study a kind of constrained backward stochastic differential equations (BSDEs) such that the nonlinear expectation of the composition of a loss function and the solution remains above zero. The existence and uniqueness result is established with the help of the Skorokhod problem and the method of contraction mapping. We provide the comparison properties for the pointwise value of the solutions and the expectation of the solutions, respectively. In addition, a similar BSDE with risk measure reflection is proposed, which can be applied to the superhedging for contingent claims under risk management constraints.