A numerical scheme for BSDEs

In this paper we propose a numerical scheme for a class of backward stochastic differential equations (BSDEs) with possible path-dependent terminal values. We prove that our scheme converges in the strong L² sense and derive its rate of convergence. As an intermediate step we prove an L²-type regularity of the solution to such BSDEs. Such a notion of regularity, which can be thought of as the modulus of continuity of the paths in an L² sense, is new. Some other features of our scheme include the following: (i) both components of the solution are approximated by step processes (i.e., piecewise constant processes); (ii) the regularity requirements on the coefficients are practically "minimum"; (iii) the dimension of the integrals involved in the approximation is independent of the partition size.