Leblanc, B., Renault, Olivier and Scaillet, O. (2000) A correction note on the first passage time of an Ornstein-Uhlenbeck process to a boundary. Finance and stochastics, 4 (1). pp. 109-111. ISSN 0949-2984
Abstract
This paper provides the derivation of the hitting time density of an Ornstein-Uhlenbeck process to a flat boundary. The derivation relies on a change of measure approach and delivers an explicit formula. This formula is an amended expression of the result given in Leblanc and Scaillet (1998). It corresponds to the formula given by a time substitution approach when the boundary level coincides with the mean of the invariant measure. It can for example be used to price digital up-and-in credit spread options when the logarithm of the credit spread is assumed to follow an Ornstein-Uhlenbeck process.
| Item Type: | Article |
|---|---|
| Official URL: | http://www.springerlink.com/content/101164/ |
| Additional Information: | © 2000 Springer |
| Uncontrolled Keywords: | hitting time, Ornstein-Uhlenbeck process, path dependent option |
| Library of Congress subject classification: | H Social Sciences > HG Finance |
| Journal of Economic Literature Classification System: | E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Determination of Interest Rates; Term Structure of Interest Rates G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing; Futures Pricing |
| Sets: | Collections > Economists Online Research centres and groups > Financial Markets Group (FMG) |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/18731/ |
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