A CHANGE OF MEASURE FORMULA FOR RECURSIVE CONDITIONAL EXPECTATIONS

We derive a representation for the value process associated to the solutions of forward–backward stochastic differential equations in a jump-diffusion setting under multiple probability measures. Motivated by concrete financial problems, the latter representations are then applied to devise a generalization of the change of numéraire technique, allowing to obtain recursive pricing formulas in the presence of nonlinear funding terms due to e.g. collateralization agreements.