On a martingale associated to generalized Ornstein-Uhlenbeck processes and an application to finance (Q2485843): Difference between revisions

The author studies a certain class of generalized Ornstein-Uhlenbeck processes \(X= (X_t)\) which are obtained from a classical Ornstein-Uhlenbeck process by replacing the driving Brownian motion with a backward driven spectrally negative Lévy process \((Z_t)\) starting from \(0\), i.e. \(X\) is the unique solution of the stochastic differential equation \[ dX_t= -\lambda X_t dt+ dZ_t\qquad (X_0= x\in R) \] (here, \(\lambda > 0\) is a constant). Consider the stopping time \(T_y\) \((y> x)\) and the functional \(I_t\) given by \(T_y= \inf\{s\geq 0: X_s> y\} \text{ and } I_t= \int^t_0 X_s ds,\) respectively. Under additional assumptions the author obtains the (joimt) Laplace transform of \((T_y, I_{T_y})\). Finally, this result is used to obtain the Laplace transform of the price of a European call option on the maximum on the yield in a general Vasicek framework.