We consider the problem of the first passage time T of an inhomogeneous geometric Brownian motion through a constant threshold, for which only limited results are available in the literature. In the case of a strong positive drift, we get an approximation of the cumulants of T of any order using the algebra of formal power series applied to an asymptotic expansion of its Laplace transform. The interest in the cumulants is due to their connection with moments and the accounting of some statistical properties of the density of T like skewness and kurtosis. Some case studies coming from neuronal modeling with reversal potential and mean reversion models of financial markets show the goodness of the approximation of the first moment of T. However hints on the evaluation of higher order moments are also given, together with considerations on the numerical performance of the method.

On the Cumulants of the First Passage Time of the Inhomogeneous Geometric Brownian Motion

Elvira Di Nardo;Giuseppe D'Onofrio
2021

Abstract

We consider the problem of the first passage time T of an inhomogeneous geometric Brownian motion through a constant threshold, for which only limited results are available in the literature. In the case of a strong positive drift, we get an approximation of the cumulants of T of any order using the algebra of formal power series applied to an asymptotic expansion of its Laplace transform. The interest in the cumulants is due to their connection with moments and the accounting of some statistical properties of the density of T like skewness and kurtosis. Some case studies coming from neuronal modeling with reversal potential and mean reversion models of financial markets show the goodness of the approximation of the first moment of T. However hints on the evaluation of higher order moments are also given, together with considerations on the numerical performance of the method.
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https://www.mdpi.com/2227-7390/9/9/956/htm
hitting times; Brennan–Schwartz model; formal power series; multiplicative noise
Elvira Di Nardo; Giuseppe D'Onofrio
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/2318/1787599
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