A note on first-passage times of continuously time-changed Brownian motion

作者：Hieber Peter; Scherer Matthias^*

来源：Statistics & Probability Letters, 2012, 82(1): 165-172.

DOI：10.1016/j.spl.2011.09.018

• Double-barrier problem
• First-exit time
• First-passage time
• Time-changed Brownian motion
• Barrier option

The probability of a Brownian motion with drift to remain between two constant barriers (for some period of time) is known explicitly. In mathematical finance, this and related results are required, for example, for the pricing of single-barrier and double-barrier options in a Black-Scholes framework. One popular possibility to generalize the Black-Scholes model is to introduce a stochastic time scale. This equips the modelled returns with desirable stylized facts such as volatility clusters and jumps. For continuous time transformations, independent of the Brownian motion, we show that analytical results for the double-barrier problem can be obtained via the Laplace transform of the time change. The result is a very efficient power series representation for the resulting exit probabilities. We discuss possible specifications of the time change based on integrated intensities of shot-noise type and of basic affine process type.

• 出版日期2012-1