A very efficient approach to compute the first-passage probability density function in a time-changed Brownian model: Applications in finance

Luca Vincenzo Ballestra, Graziella Pacelli and Davide Radi ()

Physica A: Statistical Mechanics and its Applications, 2016, vol. 463, issue C, 330-344

Abstract: We propose a numerical method to compute the first-passage probability density function in a time-changed Brownian model. In particular, we derive an integral representation of such a density function in which the integrand functions must be obtained solving a system of Volterra equations of the first kind. In addition, we develop an ad-hoc numerical procedure to regularize and solve this system of integral equations.

Keywords: Time-changed Brownian motion; First-passage probability; Default risk; Option pricing; System of integral equations; Numerical quadrature (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:463:y:2016:i:c:p:330-344

DOI: 10.1016/j.physa.2016.07.016

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