Computing the First Passage Time Density of a Time-Dependent Urnstein-Uhlenbeck Process to a Moving Boundary
The Chinese University of Hong Kong
C. H. Hui
Hong Kong Monetary Authority - Research Department
Applied Mathematics Letters, Vol. 19, pp. 1399-1405, 2006
In this paper we use the method of images to derive the closed-form formula for the first passage time density of a timed-dependent Ornstein-Uhlenbeck process to a parametric class of moving boundaries. The results are then applied to develop a simple, efficient and systematic approximation scheme to compute tight upper and lower bounds of the first passage time density through a fixed boundary.
Number of Pages in PDF File: 7
Keywords: Ornstein-Uhlenbeck process, Fokker-Planck equation, First passage time density, Method of images, Moving boundary
JEL Classification: C60, G13Accepted Paper Series
Date posted: August 27, 2007
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