Computing the First Passage Time Density of a Time-Dependent Urnstein-Uhlenbeck Process to a Moving Boundary

Applied Mathematics Letters, Vol. 19, pp. 1399-1405, 2006

7 Pages Posted: 27 Aug 2007  

Chi-Fai Lo

The Chinese University of Hong Kong

C. H. Hui

Hong Kong Monetary Authority - Research Department

Abstract

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.

Keywords: Ornstein-Uhlenbeck process, Fokker-Planck equation, First passage time density, Method of images, Moving boundary

JEL Classification: C60, G13

Suggested Citation

Lo, Chi-Fai and Hui, C. H., Computing the First Passage Time Density of a Time-Dependent Urnstein-Uhlenbeck Process to a Moving Boundary. Applied Mathematics Letters, Vol. 19, pp. 1399-1405, 2006. Available at SSRN: https://ssrn.com/abstract=1007155

Chi-Fai Lo (Contact Author)

The Chinese University of Hong Kong ( email )

Department of Physics
Shatin, N.T., Hong Kong
China

Cho-Hoi Hui

Hong Kong Monetary Authority - Research Department ( email )

Hong Kong
China

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