Joint Hitting-Time Densities for Finite State Markov Processes

Authors Tomasz R. Bielecki, Monique Jeanblanc, Ali Devin Sezer

Publication date 27 February 2014

Stopping times; optimal stopping problems; gambling theory (60G40) Continuous-time Markov processes on discrete state spaces (60J27) Credit risk (91G40)

Abstract: For a finite state Markov process and a finite collection

G a m m a_{k}, k i n K

of subsets of its state space, let

a u_{k}

be the first time the process visits the set

G a m m a_{k}

. We derive explicit/recursive formulas for the joint density and tail probabilities of the stopping times

a u_{k}, k i n K

. The formulas are natural generalizations of those associated with the jump times of a simple Poisson process. We give a numerical example and indicate the relevance of our results to credit risk modeling.

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