{"title":"Non-explicit formula of boundary crossing probabilities by the Girsanov theorem","authors":"Yoann Potiron","doi":"10.1007/s10463-024-00917-6","DOIUrl":null,"url":null,"abstract":"<div><p>This paper derives several formulae for the probability that a Wiener process, which has a stochastic drift and random variance, crosses a one-sided stochastic boundary within a finite time interval. A non-explicit formula is first obtained by the Girsanov theorem when considering an equivalent probability measure in which the boundary is constant and equal to its starting value. A more explicit formula is then achieved by decomposing the Radon–Nikodym derivative inverse. This decomposition expresses it as the product of a random variable, which is measurable with respect to the Wiener process’s final value, and an independent random variable. We also provide an explicit formula based on a strong theoretical assumption. To apply the Girsanov theorem, we assume that the difference between the drift increment and the boundary increment, divided by the standard deviation, is absolutely continuous. Additionally, we assume that its derivative satisfies Novikov’s condition.</p></div>","PeriodicalId":55511,"journal":{"name":"Annals of the Institute of Statistical Mathematics","volume":"77 3","pages":"353 - 385"},"PeriodicalIF":0.8000,"publicationDate":"2024-11-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Annals of the Institute of Statistical Mathematics","FirstCategoryId":"100","ListUrlMain":"https://link.springer.com/article/10.1007/s10463-024-00917-6","RegionNum":4,"RegionCategory":"数学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"STATISTICS & PROBABILITY","Score":null,"Total":0}
引用次数: 0
Abstract
This paper derives several formulae for the probability that a Wiener process, which has a stochastic drift and random variance, crosses a one-sided stochastic boundary within a finite time interval. A non-explicit formula is first obtained by the Girsanov theorem when considering an equivalent probability measure in which the boundary is constant and equal to its starting value. A more explicit formula is then achieved by decomposing the Radon–Nikodym derivative inverse. This decomposition expresses it as the product of a random variable, which is measurable with respect to the Wiener process’s final value, and an independent random variable. We also provide an explicit formula based on a strong theoretical assumption. To apply the Girsanov theorem, we assume that the difference between the drift increment and the boundary increment, divided by the standard deviation, is absolutely continuous. Additionally, we assume that its derivative satisfies Novikov’s condition.
期刊介绍:
Annals of the Institute of Statistical Mathematics (AISM) aims to provide a forum for open communication among statisticians, and to contribute to the advancement of statistics as a science to enable humans to handle information in order to cope with uncertainties. It publishes high-quality papers that shed new light on the theoretical, computational and/or methodological aspects of statistical science. Emphasis is placed on (a) development of new methodologies motivated by real data, (b) development of unifying theories, and (c) analysis and improvement of existing methodologies and theories.