Journal of Computational Finance

Risk.net

Computing hitting time densities for CIR and OU diffusions: applications to mean-reverting models

Vadim Linetsky

ABSTRACT

This paper provides explicit analytical characterizations for first hitting time densities for Cox–Ingersoll–Ross (CIR) and Ornstein–Uhlenbeck (OU) diffusions in terms of relevant Sturm–Liouville eigenfunction expansions. The results are applicable to the analysis of mean-reverting CIR and OU models for interest rates, credit spreads, stochastic volatility, commodity convenience yields and other mean-reverting financial variables.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: