Approximation convergence in the inverse first-passage time problem

Publication date 22 June 2021

Abstract: In this paper, we consider the inverse first-passage Shiryaev problem, i.e. for

(W_{t})_{t g e q 0}

a standard Brownian motion and any upper boundary emph{continuous} function

g : m a t h b b R^{+} i g h t a r r o w m a t h b b R

satisfying

g (0) g e q 0

, we define

m a t h r m T_{g}^{W} := i n f t i n m a t h b b R^{+} e x t s . t . W_{t} g e q g (t),

and

f_{g}^{W} (t)

its related density. For any target density function of the form

f : m a t h b b R^{+} i g h t a r r o w m a t h b b R^{+}

satisfying some smooth assumptions and any arbitrarily big horizon time

T > 0

, we show the existence of a related emph{continuous} boundary

g_{f, T} : [0, T] i g h t a r r o w m a t h b b R^{+}

, with

g_{f, T} (0) g e q 0

, which satisfies

f_{g_{f,T}}^W (t) = f(t) ext{ for } 0 leq t leq T.

The novelty in this paper is that we consider a more direct proof of existence based on Arzel`a-Ascoli theorem, where

g_{f, T}

is exhibited as a limit boundary of a subsequence of a piecewise linear boundary. As this is not a completely direct proof, we do not obtain any explicit formula for

g_{f, T}

as a function of

f

. The results are also proved in the symmetrical two-dimensional boundary case.

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