A correction note on the first passage time of an Ornstein-Uhlenbeck process to a boundary (Q1979085): Difference between revisions

The derivation of the hitting time density of an Ornstein-Uhlenbeck process to a flat boundary is provided. The derivation relies on a change of measure approach and delivers an explicit formula. This formula is an amended expression of the result given by \textit{B. Leblanc} and \textit{O. Scaillet} [Finance Stoch. 2, No. 4, 349-367 (1998; Zbl 0913.60005)]. 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.