American options in an imperfect complete market with default

We study pricing and hedging for American options in an imperfect market model with default, where the imperfections are taken into account via the nonlinearity of the wealth dynamics. The payoff is given by an RCLL adapted process (ξt). We define the seller's price of the American option as the minimum of the initial capitals which allow the seller to build up a superhedging portfolio. We prove that this price coincides with the value function of an optimal stopping problem with a nonlinear expectation 𝓔g (induced by a BSDE), which corresponds to the solution of a nonlinear reflected BSDE with obstacle (ξt). Moreover, we show the existence of a superhedging portfolio strategy. We then consider the buyer's price of the American option, which is defined as the supremum of the initial prices which allow the buyer to select an exercise time τ and a portfolio strategy φ so that he/she is superhedged. We show that the buyer's price is equal to the value function of an optimal stopping problem with a nonlinear expectation, and that it can be characterized via the solution of a reflected BSDE with obstacle (ξt). Under the additional assumption of left upper semicontinuity along stopping times of (ξt), we show the existence of a super-hedge (τ, φ) for the buyer.

Backward stochastic differential equations with two distinct reflecting barriers and quadratic growth generator

We show the existence of a solution for the double-barrier reflected BSDE when the barriers are completely separate and the generator is continuous with quadratic growth. As an application, we solve the risk-sensitive mixed zero-sum stochastic differential game. In addition we deal with recallable options under Knightian uncertainty.