On the First Passage Time Under Regime-Switching with Jumps

Masaaki Kijima () and Chi Chung Siu ()
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Masaaki Kijima: Tokyo Metropolitan University, Graduate School of Social Sciences
Chi Chung Siu: UTS Business School

A chapter in Inspired by Finance, 2014, pp 387-410 from Springer

Abstract: Abstract In this paper, we present the analytical solution for the Laplace transform of the joint distribution of the first passage time and undershoot/overshoot value under a regime-switching jump-diffusion model. With the help of some martingale technique, the Laplace transform of the first passage time becomes the solution of a system of linear equations. The methodology discussed here is fairly elementary and can be applied to many stopping-time problems under a regime-switching model with jump risks. Some numerical examples are given to demonstrate the usefulness of our method.

Keywords: First passage time; Regime-switching jump-diffusion model; 90G20 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-02069-3_18

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DOI: 10.1007/978-3-319-02069-3_18

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