Stochastic maximum principle for time-changed forward-backward stochastic control problem with Lévy noise
Year: 2026
Type: preprint
Abstract: This paper establishes a stochastic maximum principle for optimal control problems governed by time-changed forward-backward stochastic differential equations with Lévy noise. The system incorporates a random, non-decreasing operational time (the inverse of an $α$-stable subordinator) to model phenomena like trapping events and subdiffusion. Using a duality transformation and the convex variational method, we derive necessary and sufficient conditions for optimality, expressed through a novel set of adjoint equations. Finally, the theoretical results are applied to solve an explicit cash management problem under stochastic recursive utility.
Source: arXiv (Cornell University)
Authors: Chen, Jingwei, Ye, Jun, Chen, Feng
Institution: Tsinghua University
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7141055118
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