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Mathematics 2012
Nonlinear boundary crossing probabilities of Brownian motion with random jumpsAbstract: We derive explicit formulas for probabilities of Brownian motion with jumps crossing linear or piecewise linear boundaries in any finite interval. We then use these formulas to approximate the boundary crossing probabilities for general nonlinear boundaries. The jump process can be any integer-valued process and jump sizes can have general distributions. Moreover, the jump sizes can be even correlated and/or non-identically distributed. The numerical algorithm is straightforward and easy to implement. Some numerical examples are presented.
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