The paper focuses on an approximation of the first passage time probability density function of a Feller stochastic process by using cumulants and a Laguerre-Gamma polynomial approximation. The feasibility of the method relies on closed form formulae for cumulants and moments recovered from the Laplace transform of the probability density function and using the algebra of formal power series. To improve the approximation, sufficient conditions on cumulants are stated. The resulting procedure is made easier to implement by the symbolic calculus and a rational choice of the polynomial degree depending on skewness, kurtosis and hyperskewness. Some case studies coming from neuronal and financial fields show the goodness of the approximation even for a low number of terms. Open problems are addressed at the end of the paper.

A cumulant approach for the first-passage-time problem of the Feller square-root process

Di Nardo E.
;
D'Onofrio G.
2021

Abstract

The paper focuses on an approximation of the first passage time probability density function of a Feller stochastic process by using cumulants and a Laguerre-Gamma polynomial approximation. The feasibility of the method relies on closed form formulae for cumulants and moments recovered from the Laplace transform of the probability density function and using the algebra of formal power series. To improve the approximation, sufficient conditions on cumulants are stated. The resulting procedure is made easier to implement by the symbolic calculus and a rational choice of the polynomial degree depending on skewness, kurtosis and hyperskewness. Some case studies coming from neuronal and financial fields show the goodness of the approximation even for a low number of terms. Open problems are addressed at the end of the paper.
391
125707
125707
https://arxiv.org/abs/2006.12073
CIR model; Formal power series; Hitting times; Laguerre series; Symbolic calculus
Di Nardo E.; D'Onofrio G.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/2318/1761393
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