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Boundary Crossing Probabilities of Jump Diffusion Processes to Time-Dependent Boundaries

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  • Tung-Lung Wu

    (Mississippi State University)

Abstract

The finite Markov chain imbedding technique has been used to compute the boundary crossing probabilities of one and higher-dimensional Brownian motion. The idea is to cast the boundary crossing probabilities as the limiting probabilities of a finite Markov chain entering a set of absorbing states induced by the boundaries. In this manuscript, we extend the technique to compute the boundary crossing probabilities of a class of jump diffusion processes to time-dependent boundaries. We allow the jump sizes to have general distributions and the boundaries to be non-linear. Numerical examples are given to illustrate our theoretical results.

Suggested Citation

  • Tung-Lung Wu, 2020. "Boundary Crossing Probabilities of Jump Diffusion Processes to Time-Dependent Boundaries," Methodology and Computing in Applied Probability, Springer, vol. 22(1), pages 13-24, March.
    • Handle: RePEc:spr:metcap:v:22:y:2020:i:1:d:10.1007_s11009-018-9685-5
    DOI: 10.1007/s11009-018-9685-5
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    References listed on IDEAS

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