The first passage time problem for mixed-exponential jump processes with applications in insurance and finance

Chuancun Yin, Yuzhen Wen, Zhaojun Zong and Ying Shen

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Abstract: This paper stidies the first passage times to constant boundaries for mixed-exponential jump diffusion processes. Explicit solutions of the Laplace transforms of the distribution of the first passage times, the joint distribution of the first passage times and undershoot (overshoot) are obtained. As applications, we present explicit expression of the Gerber-Shiu functions for surplus processes with two-sided jumps, present the analytical solutions for popular path-dependent options such as lookback and barrier options in terms of Laplace transforms and give a closed-form expression on the price of the zero-coupon bond under a structural credit risk model with jumps.

Date: 2013-02, Revised 2014-06
New Economics Papers: this item is included in nep-ias
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