A Risk-Sensitive Global Maximum Principle for Controlled Fully Coupled FBSDEs with Applications

Jingtao Lin; Jingtao Shi

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arXiv · 2304.04136

A Risk-Sensitive Global Maximum Principle for Controlled Fully Coupled FBSDEs with Applications

Jingtao Lin·Jingtao Shi

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Abstract

This paper is concerned with a kind of risk-sensitive optimal control problem for fully coupled forward-backward stochastic systems. The control variable enters the diffusion term of the state equation and the control domain is not necessarily convex. A new global maximum principle is obtained without assuming that the value function is smooth. The maximum condition, the first- and second-order adjoint equations heavily depend on the risk-sensitive parameter. An optimal control problem with a fully coupled linear forward-backward stochastic system and an exponential-quadratic cost functional is discussed. The optimal feedback control and optimal cost are obtained by using Girsanov's theorem and completion-of-squares approach via risk-sensitive Riccati equations. A local solvability result of coupled risk-sensitive Riccati equations is given by Picard-Lindel$\ddot{o}$f's Theorem.

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Jingtao Lin, Jingtao Shi. 2023-04-09. A Risk-Sensitive Global Maximum Principle for Controlled Fully Coupled FBSDEs with Applications. https://arxiv.org/abs/2304.04136

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