Policy Iteration for Linear-Quadratic Stochastic Differential Games with State- and Control-Dependent Noise
This paper presents a novel sequential policy iteration (PI) method for stochastic differential games with state- and control-dependent noise. The updates preserve mean-square stability, so that the iteration is well posed. We further derive a closed-form expression for the Fr\'echet derivative of the sequential PI map at a Nash equilibrium. The resulting characterization reveals how control-dependent noise, policy-evaluation sensitivity, and update ordering govern local error propagation, and yields explicit sufficient conditions for local linear convergence. Since finding an initial stabilizing solution is a major challenge in policy iteration, we also propose a homotopy-based initialization that ensures a valid starting point. The effectiveness of the proposed PI algorithm and the analytical results are verified through a numerical example.