We first establish two a priori estimates that will be used throughout the proof. Let
\(Z \in \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })\) with
\(\|Z\|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \leq \| \bar{\sigma }\|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}\). Then by the inequality
\((a + b)^{2} \leq 2(a^{2} + b^{2})\) for
\((a, b) \in \mathbb{R}^{2}\), we have
$$ \|\bar{\sigma }+ Z \|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \leq 2 \big(\|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })} + \|Z\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })}\big) \leq 4\|\bar{\sigma }\|^{2}_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}. $$
(8.5)
Moreover, Corollary
7.4, Lemma
A.1 and (
8.5) show that the FBSDE (
8.2), (
8.3) (with this fixed
\(Z\)) has a bounded solution such that
\(\varphi \) satisfies the estimate
$$\begin{aligned} \|\varphi \|_{\mathcal{S}^{\infty }} &\leq |x| + \tilde{\gamma }T\big( \| \nu \|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P})}\|\bar{\sigma }+ Z\|_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P})} + \|\nu '\|_{\mathcal{S}^{ \infty }}\|\bar{\sigma }+ Z\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P})} \big) \\ &\leq |x| + 8 \tilde{\gamma }T \big(\|\alpha \|_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P})} + 1\big)^{2} \\ &\phantom{=:} \qquad \,\, \times \big( \|\nu \|_{\mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P}^{\alpha })}\|\bar{\sigma }+ Z\|_{\mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P}^{\alpha })} + \|\nu '\|_{\mathcal{S}^{\infty }}\|\bar{\sigma }+ Z \|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \big) \\ &\leq |x| + 32 \tilde{\gamma }T \big(\|\alpha \|_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P})} + 1\big)^{2} \\ &\phantom{=:} \qquad \,\, \times \big( \|\nu \|_{\mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P}^{\alpha })}\|\bar{\sigma }\|_{\mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P}^{\alpha })} + \|\nu '\|_{\mathcal{S}^{\infty }}\|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \big) \\ &=: h_{\varphi }(x, \tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu '). \end{aligned}$$
(8.6)
Next, let
\(Z^{0}:=0\) and define
\((\varphi ^{1},\dot{\varphi }^{1})\) as the solution to the FBSDEs (
8.2), (
8.3) corresponding to the volatility
\(\bar{\sigma }+Z^{0} \in \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })\), and
\((Y^{1},Z^{1})\) as the solution to
$$\begin{aligned} \mathrm{d}Y^{1}_{t} &= \bigg((\bar{\sigma }_{t}+Z^{0}_{t})^{2} \frac{\gamma ^{1}-\gamma ^{2}}{2}\varphi ^{1}_{t}+\kappa (Z^{0}_{t})^{2} - \frac{\gamma ^{1}-\gamma ^{2}}{2} \bar{\sigma }_{t}^{2} \Big( \frac{\nu _{t}}{\bar{\sigma }_{t}}+ \nu ^{\prime }_{t}\Big) \bigg) \mathrm{d}t \\ &\phantom{=:} +Z^{1}_{t} \mathrm{d}W^{\mathbb{P}^{\alpha }}_{t}, \qquad Y^{1}_{T}=0. \end{aligned}$$
By the a priori estimate (
8.6), we know that
\(\varphi ^{1}\) is bounded. This implies that
\((Y^{1},Z^{1})\) is well defined and belongs to
\(\mathcal{S}^{\infty } \times \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })\).
To establish that our mapping is indeed a contraction, we first show as in Tevzadze [
55] that it maps sufficiently small balls in
\(\mathcal{S}^{\infty }\times \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })\) into themselves. To this end, suppose that
$$ \|Y^{n-1}\|_{\mathcal{S}^{\infty }}^{2} + \|Z^{n-1}\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })} \leq R^{2}, $$
where we recall that
\(R < \min (\|\bar{\sigma }\|_{\mathbb{H}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })},\frac{1}{4\sqrt{2}x \kappa }) \). Apply Itô’s formula to
\((Y^{n})^{2}\) and use
\(Y^{n}_{T} = 0\). Then take conditional
\(\mathbb{P}^{\alpha }\)-expectations and use that
\(Y^{n}\) is bounded and
\(Z^{n} \in \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })\). For any stopping time
\(\tau \) with values in
\([0,T]\), this gives
$$\begin{aligned} 0&=(Y^{n}_{\tau })^{2} + \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} (Z^{n}_{s})^{2} \mathrm{d}s\bigg] \\ &\phantom{=:} +\mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} 2Y_{s}^{n}( \bar{\sigma }_{s}+Z^{n-1}_{s})^{2}\frac{\gamma ^{1}-\gamma ^{2}}{2} \varphi ^{n}_{s}+2Y^{n}_{s} \kappa (Z^{n-1}_{s})^{2}\mathrm{d}s\bigg] \\ &\phantom{=:} - \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} 2Y_{s}^{n} \frac{\gamma ^{1}-\gamma ^{2}}{2} (\bar{\sigma }_{s})^{2}\bigg( \frac{\nu _{s}}{\bar{\sigma }_{s}}+ \nu ^{\prime }_{s}\bigg) \mathrm{d}s \bigg]. \end{aligned}$$
Now use that
\(Y^{n} \in \mathcal{S}^{\infty }\) and
\(\|Z^{n-1}\|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \leq R\). Together with the a priori estimates (
8.5) and (
8.6), this yields
$$\begin{aligned} & (Y^{n}_{\tau })^{2}+ \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} (Z^{n}_{s})^{2} \mathrm{d}s\bigg] \\ &\leq |\gamma ^{1}-\gamma ^{2}| \|Y^{n}\|_{\mathcal{S}^{\infty }} \| \bar{\sigma }+ Z^{n-1}\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \|\varphi ^{n} \|_{\mathcal{S}^{\infty }} \\ &\phantom{=:} +2\kappa \|Y^{n}\|_{\mathcal{S}^{\infty }}\|Z^{n-1}\|_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })}^{2} \\ &\phantom{=:}+ |\gamma ^{1}-\gamma ^{2}| \|Y^{n}\|_{\mathcal{S}^{\infty }} \big( \| \nu \|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}\| \bar{\sigma }\|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} + \| \nu '\|_{\mathcal{S}^{\infty }}\|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })} \big) \\ &\leq \ \|Y^{n}\|_{\mathcal{S}^{\infty }} |\gamma ^{1}-\gamma ^{2}| \big(4 \|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \|\varphi ^{n} \|_{\mathcal{S}^{\infty }} + \|\nu \|_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}\|\bar{\sigma }\|_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \big) \\ &\phantom{=:}+ \ \|Y^{n}\|_{\mathcal{S}^{\infty }} \big( |\gamma ^{1}-\gamma ^{2}| \|\nu '\|_{\mathcal{S}^{\infty }}\|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })} +2 \kappa R^{2} \big) \\ &=: \|Y^{n}\|_{\mathcal{S}^{\infty }} \big( |\gamma ^{1}-\gamma ^{2}| h_{R}(x, \tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ')+2 \kappa R^{2} \big), \end{aligned}$$
(8.7)
where
$$\begin{aligned} h_{R}(x,\tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ') &:= 4 \| \bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} h_{ \varphi }(x,\tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ') \\ &\phantom{=:} + \|\nu \|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}\| \bar{\sigma }\|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} + \| \nu '\|_{\mathcal{S}^{\infty }}\|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })}. \end{aligned}$$
Taking the supremum over all
\(\tau \) (for
\(Y^{n}\)) and rearranging yields
$$\begin{aligned} \|Y^{n}\|_{\mathcal{S}^{\infty }} &\leq |\gamma ^{1}-\gamma ^{2}|h_{R}(x, \tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ^{\prime })+ 2 \kappa R^{2}. \end{aligned}$$
(8.8)
Now taking the supremum over all
\(\tau \) in (
8.7) (for
\(Z^{n}\)) and using (
8.8), we obtain
$$\begin{aligned} \|Z^{n}\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} & \leq \big( |\gamma ^{1}-\gamma ^{2}|h_{R}(x, \tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ^{\prime })+ 2 \kappa R^{2}\big)^{2} . \end{aligned}$$
Using our bounds on
\(|\gamma ^{1}-\gamma ^{2}|\) and the fact that
\(R \leq \frac{1}{4 \sqrt{2} \kappa }\), we deduce that
$$ \|Y^{n}\|_{\mathcal{S}^{\infty }}^{2} + \|Z^{n}\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })} \leq 2 \big( |\gamma ^{1}-\gamma ^{2}|h_{R}(x, \tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ^{\prime })+ 2 \kappa R^{2} \big)^{2} \leq R^{2}. $$
We next show that our iteration is a contraction on the ball
\(B_{R}\) in
\(\mathcal{S}^{\infty } \times \mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P}^{\alpha })\). To this end, consider
\((y,z), (y^{\prime },z^{\prime }) \in B_{R}^{2}\), and write
\((Y,Z)\),
\((Y^{\prime },Z^{\prime })\) for their images produced by our iteration. Also denote by
\((\varphi ,\dot{\varphi })\),
\((\varphi ^{\prime },\dot{\varphi }^{\prime })\) the corresponding optimal tracking strategies (corresponding to volatilities
\(\bar{\sigma }+z\) and
\(\bar{\sigma }+z^{\prime }\), respectively). To verify the contraction property, we have to show that for some
\(\eta \in (0,1)\),
$$ \|Y-Y^{\prime }\|_{\mathcal{S}^{\infty }}^{2}+\|Z-Z^{\prime }\|_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })}^{2} \leq \eta \big(\|y-y^{\prime }\|_{ \mathcal{S}^{\infty }}^{2}+\|z-z^{\prime }\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })}\big). $$
To ease notation, set
$$ \delta y:=y-y^{\prime },\quad \delta z:=z-z^{\prime },\quad \delta Y:=Y-Y^{\prime },\quad \delta Z:=Z-Z^{\prime }. $$
Applying Itô’s formula on
\([\tau ,T]\) for any
\([0,T]\)-valued stopping time
\(\tau \), inserting the dynamics of
\(Y\) and
\(Y^{\prime }\), taking
\(\mathbb{P}^{\alpha }\)-conditional expectations and using the identity
\(a b - c d = a(b-d) + (a -c) d\) for
\((a, b, c, d) \in \mathbb{R}^{4}\), we obtain
$$\begin{aligned} &\delta Y_{\tau }^{2} +\mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} \delta Z_{t}^{2} \mathrm{d}t\bigg] \\ &= \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[(\gamma ^{2}-\gamma ^{1}) \int _{\tau }^{T} \delta Y_{t}\big((\bar{\sigma }_{t}+z_{t})^{2} \varphi _{t}-(\bar{\sigma }_{t}+z^{\prime }_{t})^{2} \varphi ^{\prime }_{t} \big) \mathrm{d}t \bigg] \\ &\phantom{=:} - \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[ 2\kappa \int _{\tau }^{T} \delta Y_{t}\big((z_{t})^{2}-(z'_{t})^{2}\big)\mathrm{d}t\bigg] \\ & \leq \|\delta Y\|_{\mathcal{S}^{\infty }} |\gamma ^{1}-\gamma ^{2}| \,\mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} ( \bar{\sigma }_{t}+z_{t})^{2} |\varphi _{t}-\varphi ^{\prime }_{t}| \mathrm{d}t\bigg] \\ & \phantom{=:} + \|\delta Y\|_{\mathcal{S}^{\infty }} |\gamma ^{1}-\gamma ^{2}| \, \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} |2 \bar{\sigma }_{t}+z_{t}+z^{\prime }_{t} ||\delta z_{t}| |\varphi ^{\prime }_{t}|\mathrm{d}t\bigg] \\ &\phantom{=:} + 2 \kappa \|\delta Y\|_{\mathcal{S}^{\infty }} \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} |z_{t}+z^{\prime }_{t}||\delta z_{t}| \mathrm{d}t\bigg]. \end{aligned}$$
(8.9)
To estimate the conditional expectation in the first term on the right-hand side of (
8.9), define the process
$$ A_{t}:=\underset{u \in [0, t]}{\sup } |\varphi _{u}-\varphi ^{\prime }_{u}|, \qquad t\in [0,T]. $$
Lemma
A.3, (
8.5), Jensen’s inequality and Theorem
7.5 in turn yield
$$\begin{aligned} &\mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} ( \bar{\sigma }_{t}+z_{t})^{2} |\varphi _{t}-\varphi ^{\prime }_{t}| \mathrm{d}t\bigg] \leq \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} (\bar{\sigma }_{t}+z_{t})^{2} A_{t} \mathrm{d}t\bigg] \\ & \leq 4\|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\Big[\sup _{u \in [0, T]}| \varphi _{u}-\varphi ^{\prime }_{u}| \Big] \\ & \leq 4\|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} g_{\varphi }(x, \tilde{\gamma }, \alpha , \sqrt{2} \bar{\sigma }, \sqrt{2} \bar{\sigma }, \nu , \nu ')^{\frac{1}{2}} \| \delta z \|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}. \end{aligned}$$
(8.10)
To estimate the conditional expectation in the second term on the right-hand side of (
8.9), we use that
\(\varphi ^{\prime }\in \mathcal{S}^{\infty }\), the conditional version of the Cauchy–Schwarz inequality and the inequality
\((a + b + c)^{2} \leq 2 a^{2} + 4 b^{2} + 4 c^{2}\). Together with the fact that both
\(\|z\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}\) and
\(\|z^{\prime }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \) are smaller than
\(\|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \) and the a priori estimate (
8.6), this yields
$$\begin{aligned} &\mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} |2 \bar{\sigma }_{t}+z_{t}+z^{\prime }_{t}||\delta z_{t}| |\varphi ^{\prime }_{t}| \mathrm{d}t\bigg] \\ & \leq \|\varphi ^{\prime }\|_{\mathcal{S}^{\infty }} \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} (2\bar{\sigma }_{t}+z_{t}+z^{\prime }_{t})^{2} \mathrm{d}t\bigg]^{\frac{1}{2}} \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} \delta z_{t}^{2} \mathrm{d}t\bigg]^{\frac{1}{2}} \\ & \leq 4 h_{\varphi }(x, \tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ^{\prime }) \|\bar{\sigma }\|_{\mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P}^{\alpha })} \|\delta z \|_{\mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P}^{\alpha })} . \end{aligned}$$
(8.11)
To estimate the conditional expectation in the third term on the right-hand side of (
8.9), we argue in a similar fashion and obtain
$$\begin{aligned} \mathbb{E}^{\mathbb{P}^{\alpha }}_{\tau }\bigg[\int _{\tau }^{T} |z_{t}+z^{\prime }_{t}||\delta z_{t}| \mathrm{d}t\bigg] &\leq 2 R \|\delta z \|_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}. \end{aligned}$$
(8.12)
Now, plugging (
8.10)–
\(\text{(8.12)}\) into (
8.9), taking the supremum over all
\(\tau \) (both for
\(Y\) and
\(Z\)), then taking conditional
\(\mathbb{P}^{\alpha }\)-expectations, applying Lemma
B.1 and Theorem
7.5 (together with (
8.5)) and using the inequality
\(2a b \leq \frac{1}{\varepsilon } a^{2}+ \varepsilon b^{2}\) for
\(\varepsilon > 0\) yields
$$\begin{aligned} &\|\delta Y\|^{2}_{\mathcal{S}^{\infty }} +\| \delta Z\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })} \\ & \leq 8 |\gamma ^{1}-\gamma ^{2}|\|\delta Y\|_{\mathcal{S}^{\infty }} \|\bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} g_{\varphi }(x, \tilde{\gamma }, \alpha , \sqrt{2} \bar{\sigma }, \sqrt{2} \bar{\sigma }, \nu , \nu ^{\prime })^{\frac{1}{2}} \| \delta z\|_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \\ & \phantom{=:} + 8 |\gamma ^{1}-\gamma ^{2}|\|\delta Y\|_{\mathcal{S}^{\infty }} \| \bar{\sigma }\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} k_{\varphi }(x, \tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ^{\prime }) \| \delta z\|_{\mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \\ & \phantom{=:} +8 \kappa \|\delta Y\|_{\mathcal{S}^{\infty }} R \|\delta z \|_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \\ & \leq \frac{1}{\varepsilon }\|\delta Y\|^{2}_{\mathcal{S}^{\infty }} + \varepsilon \eta ^{2} \| \delta z\|^{2}_{\mathbb{H}^{2}_{\mathrm{BMO}}( \mathbb{P}^{\alpha })}, \end{aligned}$$
where
$$\begin{aligned} \eta &:= 4 \kappa R + 4 |\gamma ^{1}-\gamma ^{2}|\|\bar{\sigma }\|^{2}_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \\ &\phantom{=::}\qquad \quad \times \big(g_{\varphi }(x, \tilde{\gamma }, \alpha , \sqrt{2} \bar{\sigma }, \sqrt{2} \bar{\sigma }, \nu , \nu ^{\prime })^{ \frac{1}{2}} + h_{\varphi }(x, \tilde{\gamma }, \alpha , \bar{\sigma }, \nu , \nu ^{\prime })\big) . \end{aligned}$$
We deduce that for any
\(\varepsilon >1\),
$$\begin{aligned} \|\delta Y\|^{2}_{\mathcal{S}^{\infty }} +\| \delta Z\|^{2}_{\mathbb{H}^{2}_{ \mathrm{BMO}}(\mathbb{P}^{\alpha })} &\leq \|\delta Y\|^{2}_{\mathcal{S}^{\infty }} + \frac{\varepsilon }{\varepsilon -1}\| \delta Z\|^{2}_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })} \\ &\leq \frac{\varepsilon ^{2}}{\varepsilon -1}\eta ^{2} \| \delta z\|^{2}_{ \mathbb{H}^{2}_{\mathrm{BMO}}(\mathbb{P}^{\alpha })}. \end{aligned}$$
We choose
\(\varepsilon =2\) and deduce the desired result, since by our assumptions
$$ \frac{\varepsilon ^{2}}{\varepsilon -1}\eta ^{2}=4 \eta ^{2}< 1. $$