On $g$-expectations and filtration-consistent nonlinear expectations

Abstract

In this paper, we obtain a comparison theorem and a invariant representation theorem for backward stochastic differential equations (BSDEs) without any assumption on the variable $z$. Using the two results, we further develop the theory of $g$-expectations. Filtration-consistent nonlinear expectation (${\cal{F}}$-expectation) provides an ideal characterization for the dynamical risk measures, asset pricing and utilities. Under an absolutely continuous condition and a domination condition, respectively, we prove that any ${\cal{F}}$-expectation can be represented as a $g$-expectation. Our results contain a representation theorem for $n$-dimensional ${\cal{F}}$-expectations in the Lipschitz case, and two representation theorems for $1$-dimensional ${\cal{F}}$-expectations in the locally Lipschitz case, which contain quadratic ${\cal{F}}$-expectations.Comment: 30 pages. This version corrects an error in the definition of a stopping time in the proof of Theorem 2.7. Comments are welcom