Refracted Lévy processes

DOI10.1214/08-AIHP307zbMATH Open1201.60042arXiv0801.4655OpenAlexW1498026097MaRDI QIDQ974766FDOQ974766

Authors: A. E. Kyprianou, Ronnie Loeffen 

Publication date: 7 June 2010

Published in: Annales de l'Institut Henri Poincaré. Probabilités et Statistiques (Search for Journal in Brave)

Abstract: Motivated by classical considerations from risk theory, we investigate boundary crossing problems for refracted L'evy processes. The latter is a L'evy process whose dynamics change by subtracting off a fixed linear drift (of suitable size) whenever the aggregate process is above a pre-specified level. More formally, whenever it exists, a refracted L'evy process is described by the unique strong solution to the stochastic differential equation [ D U_t = - delta mathbf{1}_{{U_t >b}}D t + D X_t ] where $X=X_t:tgeq0$ is a L'evy process with law $mathbbP$ and $b,deltainmathbbR$ such that the resulting process $U$ may visit the half line $(b,infty)$ with positive probability. We consider in particular the case that $X$ is spectrally negative and establish a suite of identities for the case of one and two sided exit problems. All identities can be written in terms of the $q$-scale function of the driving L'evy process and its perturbed version describing motion above the level $b$. We remark on a number of applications of the obtained identities to (controlled) insurance risk processes.

Full work available at URL: https://arxiv.org/abs/0801.4655

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zbMATH Keywords

stochastic controlfluctuation theoryLévy processes

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Stochastic models in economics (91B70) Optimal stochastic control (93E20)

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