Approximating the first crossing-time density for a curved boundary (Q1815793): Difference between revisions

Let \(B_t\) be one-dimensional Brownian motion and \(\varphi(t)\) some real function on \(t\geq 0\). The author considers the probability \(P(T)=\mathbb{P}(B_s\leq\varphi(s)\;\forall s\leq T)\), i.e., the probability that \(B_t\) does not cross the (curved) boundary \(\varphi(t)\) before time \(T\). If \(\varphi(t)\) is linear, \(P(T)\) can easily be calculated. For general curved \(\varphi(t)\) various approximations of \(\varphi(t)\) are proposed in order to get reasonable approximate values for \(P(T)\) (or rather its density). Numerical examples are included for \(\varphi(t)=l\sqrt{t+1}\). Unfortunately, no error estimates are given.