On mean exit time from a curvilinear domain (Q956351)
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English | On mean exit time from a curvilinear domain |
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On mean exit time from a curvilinear domain (English)
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25 November 2008
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Let \(M_t=(x_t,y_t)\) solve \(dx_t=\theta(x_t)dt+\beta(x_t)d B_t^{(1)}\), \(dy_t=\mu y_tdt+(\gamma x_t^{1/2}+\alpha)y_td B_t^{(2)}\) \((B^{(1)},B^{(2)}\) Brownian Motion, \(M_0=(x,y)\), on \(D_\psi=\{(x,y)\in\mathbb{R}^2:y>\psi(x)\}\). Securing that \(M_t\) is non-explosive and simply applying Itô's and Dynkin's formulas, the mean exit time of \(M_t\) from \(D_\psi\) is obtained for \(\psi\) solving a particular nonlinear second-order differential equation involving \(\alpha,\beta, \gamma,\theta,\mu\). Several examples are discussed.
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coupled diffusion
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curvelinear domain
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mean exit time
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option pricing
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