A New Approach to the Computation of First Passage Time Distribution for Brownian Motion

• Main Author: Jin, Zhiyong
• Other Authors: Wang, Liqun (Statistics)
• Published: 2014
• Subjects: First passage time; Boundary crossing distribution; Brownian motion
• Online Access: http://hdl.handle.net/1993/23831

This thesis consists of two novel contributions to the computation of first passage time distribution for Brownian motion. First, we extend the known formula for boundary crossing probabilities for Brownian motion to the discontinuous piecewise linear boundary. Second, we derive explicit formula for the first passage time density of Brownian motion crossing piecewise linear boundary. Further, we demonstrate how to approximate the boundary crossing probabilities and density for general nonlinear boundaries. Moreover, we use Monte Carlo simulation method and develop algorithms for the numerical computation. This method allows one to assess the accuracy of the numerical approximation. Our approach can be further extended to compute two-sided boundary crossing probabilities.