On certain integral functionals of squared Bessel processes

DOI10.1080/17442508.2015.1026344MaRDI QIDQ2804020zbMATH OpenOpenAlexFDO

Authors Umut Cetin

Publication date 27 April 2016

Published in Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1209.4919, http://eprints.lse.ac.uk/61211/1/__lse.ac.uk_storage_LIBRARY_Secondary_libfile_shared_repository_Content_Cetin%2C%20U_Certain%20integral%20functionals_Cetin_Certain%20integral%20functionals_2015.pdf

zbMATH Keywords

first passage timessubordinatorBessel processesintegral functionalsmodified Bessel functionssmall deviationslast passage timesChung's law of the iterated logarithminterest rate derivativesnon-homogeneous Feller jump process

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Diffusion processes (60J60) Strong limit theorems (60F15) Limit theorems in probability theory (60F99) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Financial applications of other theories (91G80)

Abstract: Let $X$ be a squared Bessel process. Following a Feynman-Kac approach, the Laplace transforms of joint laws of $(U,in{t}_0^{R_y}{X}_s^p,ds)$ are studied where $R_y$ is the first hitting time of $y$ by $X$ and $U$ is a random variable measurable with respect to the history of $X$ until $R_y$. A subset of these results are then used to solve the associated small ball problems for $in{t}_0^{R_y}{X}_s^p,ds$ and determine a Chung's law of iterated logarithm. $(in{t}_0^{R_y}{X}_s^p,ds)$ is also considered as a purely discontinuous increasing Markov process and its infinitesimal generator is found. The findings are then used to price a class of exotic derivatives on interest rates and determine the asymptotics for the prices of some put options that are only slightly in-the-money.

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Cites work

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