This paper analyzes a method to approximate the first passage time probability density function which turns to be particularly useful if only sample data are available. The method relies on a Laguerre-Gamma polynomial approximation and iteratively looks for the best degree of the polynomial such that a normalization condition is preserved. The proposed iterative algorithm relies on simple and new recursion formulae involving first passage time moments. These moments can be computed recursively from cumulants, if they are known. In such a case, the approximated density can be used also for the maximum likelihood estimates of the parameters of the underlying stochastic process. If cumulants are not known, suitable unbiased estimators relying on k-statistics might be employed. To check the feasibility of the method both in fitting the density and in estimating the parameters, the first passage time problem of a geometric Brownian motion is considered.

Approximating the first passage time density from data using generalized Laguerre polynomials

Di Nardo, Elvira;D’Onofrio, Giuseppe
;
Martini, Tommaso
2022-01-01

Abstract

This paper analyzes a method to approximate the first passage time probability density function which turns to be particularly useful if only sample data are available. The method relies on a Laguerre-Gamma polynomial approximation and iteratively looks for the best degree of the polynomial such that a normalization condition is preserved. The proposed iterative algorithm relies on simple and new recursion formulae involving first passage time moments. These moments can be computed recursively from cumulants, if they are known. In such a case, the approximated density can be used also for the maximum likelihood estimates of the parameters of the underlying stochastic process. If cumulants are not known, suitable unbiased estimators relying on k-statistics might be employed. To check the feasibility of the method both in fitting the density and in estimating the parameters, the first passage time problem of a geometric Brownian motion is considered.
2022
118
106991
107021
https://www.sciencedirect.com/science/article/pii/S1007570422004786?dgcid=coauthor
Stochastic process; Cumulant; Geometric brownian motion: k-statistic; Recursive algorithm
Di Nardo, Elvira; D’Onofrio, Giuseppe; Martini, Tommaso
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2318/1879721
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