Iterative algorithm for the first passage time distribution in a jump-diffusion model with regime-switching, and its applications

DOI10.1016/J.CAM.2015.08.015MaRDI QIDQ893122zbMATH OpenOpenAlexFDO

Authors Jerim Kim, Bara Kim, In-Suk Wee

Publication date 13 November 2015

Published in Journal of Computational and Applied Mathematics (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1016/j.cam.2015.08.015

zbMATH Keywords

Laplace transformiterative algorithmregime-switchingfirst passage timejump-diffusion modeldefaultable bond pricing

Mathematics Subject Classification ID

Computational methods in Markov chains (60J22) Numerical analysis or methods applied to Markov chains (65C40) Numerical methods (including Monte Carlo methods) (91G60) Markov chains (discrete-time Markov processes on discrete state spaces) (60J10) Diffusion processes (60J60) Continuous-time Markov processes on general state spaces (60J25) Financial applications of other theories (91G80)

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Cites work

• A Second-order Finite Difference Method for Option Pricing Under Jump-diffusion Models
• A class of Lévy process models with almost exact calibration to both barrier and vanilla FX options
• A first passage problem for a bivariate diffusion process: Numerical solution with an application to neuroscience when the process is Gauss-Markov
• A jump-diffusion model for option pricing
• A note on Hurwitz stability of matrices
• A transform approach to compute prices and Greeks of barrier options driven by a class of Lévy processes
• CREDIT SPREADS, OPTIMAL CAPITAL STRUCTURE, AND IMPLIED VOLATILITY WITH ENDOGENOUS DEFAULT AND JUMP RISK
• Closed-Form Solutions for Perpetual American Put Options with Regime Switching
• Default probabilities of a holding company, with complete and partial information
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• On the First Exit Time of a Completely Asymmetric Stable Process from a Finite Interval
• On the First Passage Time Under Regime-Switching with Jumps
• On the discounted penalty at ruin in a jump-diffusion and the perpetual put option
• Option pricing when underlying stock returns are discontinuous
• Overshoots and undershoots of Lévy processes
• Phase-type Fitting of scale functions for spectrally negative Lévy processes
• Ruin probabilities and overshoots for general Lévy insurance risk processes
• Russian and American put options under exponential phase-type Lévy models.
• The Fourier-series method for inverting transforms of probability distributions
• The joint distribution of the time of ruin, the surplus immediately before ruin, and the deficit at ruin

Cited in

(7)

• Efficient computation of first passage times in Kou's jump-diffusion model
• FIRST PASSAGE TIME UNDER A REGIME-SWITCHING JUMP-DIFFUSION MODEL AND ITS APPLICATION IN THE VALUATION OF PARTICIPATING CONTRACTS
• On the First Passage Time Under Regime-Switching with Jumps
• On barrier option pricing by Erlangization in a regime-switching model with jumps
• Pricing external barrier options in a regime-switching model
• An improved algorithm for the estimation of the mean first passage time of ordinary stochastic differential equations
• On the default probability in a regime-switching regulated market

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