First exit-time analysis for an approximate Barndorff-Nielsen and Shephard model with stationary self-decomposable variance process

Shantanu Awasthi and Indranil SenGupta

Papers from arXiv.org

Abstract: In this paper, an approximate version of the Barndorff-Nielsen and Shephard model, driven by a Brownian motion and a L\'evy subordinator, is formulated. The first-exit time of the log-return process for this model is analyzed. It is shown that with certain probability, the first-exit time process of the log-return is decomposable into the sum of the first exit time of the Brownian motion with drift, and the first exit time of a L\'evy subordinator with drift. Subsequently, the probability density functions of the first exit time of some specific L\'evy subordinators, connected to stationary, self-decomposable variance processes, are studied. Analytical expressions of the probability density function of the first-exit time of three such L\'evy subordinators are obtained in terms of various special functions. The results are implemented to empirical S&P 500 dataset.

Date: 2020-06, Revised 2021-01
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Citations: View citations in EconPapers (1)

Published in Journal of Stochastic Analysis (formerly, Communications on Stochastic Analysis), 2021

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2006.07167

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