Open Access
October 2011 Existence and uniqueness of solutions to the inverse boundary crossing problem for diffusions
Xinfu Chen, Lan Cheng, John Chadam, David Saunders
Ann. Appl. Probab. 21(5): 1663-1693 (October 2011). DOI: 10.1214/10-AAP714

Abstract

We study the inverse boundary crossing problem for diffusions. Given a diffusion process Xt, and a survival distribution p on [0, ∞), we demonstrate that there exists a boundary b(t) such that p(t) = ℙ[τ > t], where τ is the first hitting time of Xt to the boundary b(t). The approach taken is analytic, based on solving a parabolic variational inequality to find b. Existence and uniqueness of the solution to this variational inequality were proven in earlier work. In this paper, we demonstrate that the resulting boundary b does indeed have p as its boundary crossing distribution. Since little is known regarding the regularity of b arising from the variational inequality, this requires a detailed study of the problem of computing the boundary crossing distribution of Xt to a rough boundary. Results regarding the formulation of this problem in terms of weak solutions to the corresponding Kolmogorov forward equation are presented.

Citation

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Xinfu Chen. Lan Cheng. John Chadam. David Saunders. "Existence and uniqueness of solutions to the inverse boundary crossing problem for diffusions." Ann. Appl. Probab. 21 (5) 1663 - 1693, October 2011. https://doi.org/10.1214/10-AAP714

Information

Published: October 2011
First available in Project Euclid: 25 October 2011

zbMATH: 1244.60078
MathSciNet: MR2884048
Digital Object Identifier: 10.1214/10-AAP714

Subjects:
Primary: 35R35 , 60J60

Keywords: Brownian motion , Diffusion processes , Inverse boundary crossing problem , variational inequalities , viscosity solutions

Rights: Copyright © 2011 Institute of Mathematical Statistics

Vol.21 • No. 5 • October 2011
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