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arXiv · 1111.3736

Hitting time for Bessel processes - walk on moving spheres algorithm (WoMS)

Madalina Deaconu·Samuel Herrmann
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Abstract

In this article we investigate the hitting time of some given boundaries for Bessel processes. The main motivation comes from mathematical finance when dealing with volatility models, but the results can also be used in optimal control problems. The aim here is to construct a new and efficient algorithm in order to approach this hitting time. As an application we will consider the hitting time of a given level for the Cox-Ingersoll-Ross process. The main tools we use are on one side, an adaptation of the method of images to this particular situation and on the other side, the connection that exists between Cox-Ingersoll-Ross processes and Bessel processes.

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Madalina Deaconu, Samuel Herrmann. 2011-11-16. Hitting time for Bessel processes - walk on moving spheres algorithm (WoMS). https://doi.org/10.1214/12-aap900

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