General linear forward and backward Stochastic difference equations with applications

• Main Authors: Xu, Juanjuan, Zhang, Huanshi, Xie, Lihua
• Other Authors: School of Electrical and Electronic Engineering
• Format: Article
• Language: English
• Published: 2020
• Subjects: Engineering::Electrical and electronic engineering; Forward and Backward Stochastic Difference Equations; Stochastic Optimal Control
• Online Access: https://hdl.handle.net/10356/137853
• Institution: Nanyang Technological University

In this paper, we consider a class of general linear forward and, backward stochastic difference equations (FBSDEs) which are fully coupled. The necessary and sufficient conditions for the existence of a (unique) solution to FBSDEs are given in terms of a Riccati equation. Two kinds of stochastic LQ optimal control problem are then studied as applications. First, we derive the optimal solution to the classic stochastic LQ problem by applying the solution to the associated FBSDEs. Secondly, we study a new type of LQ problem governed by a forward–backward stochastic system (FBSS). By applying the maximum principle and the solution to FBSDEs, an explicit solution is given in terms of a Riccati equation. Finally, by exploring the asymptotic behavior of the Riccati equation, we derive an equivalent condition for the mean-square stabilizability of FBSS.