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A correction note on the first passage time of an Ornstein-Uhlenbeck process to a boundary

Leblanc, B. and 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

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Identification Number: 10.1007/s007800050007

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
Subjects: H Social Sciences > HG Finance
Sets: Collections > Economists Online
Research centres and groups > Financial Markets Group (FMG)
Date Deposited: 05 Dec 2008 15:09
Last Modified: 17 Aug 2012 08:59
URI: http://eprints.lse.ac.uk/id/eprint/18731

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