a survey and some generalizations of bessel strongprocessesstrong.pdf

A Survey and Some Generalizations of Bessel Processes Anja G¨oing-Jaeschke∗ Marc Yor† 1999 Abstract Bessel processes play an important role in financial mathematics be- cause of their strong relation to financial processes like geometric Brown- ian motion or CIR processes. We are interested in the first time Bessel processes and more generally, radial Ornstein–Uhlenbeck processes hit a given barrier. We give explicit expressions of the Laplace transforms of first hitting times by (squared) radial Ornstein–Uhlenbeck processes, i. e., CIR processes. As a natural extension we study squared Bessel processes and squared Ornstein–Uhlenbeck processes with negative dimensions or negative starting points and derive their properties. Keywords: First hitting times; CIR processes; Bessel processes; radial Ornstein– Uhlenbeck processes; Bessel processes with negative dimensions 1 Introduction Bessel processes have come to play a distinguished role in financial mathematics for at least two reasons, which have a lot to do with the models being usually considered. One of these models is the Cox–Ingersoll–Ross (CIR) family of dif- fusions, also known as square-root diffusions, which solve dX = (a + bX ) dt + c |X | dB , (1) t t t t with X = x ≥ 0, a ≥ 0, b ∈ R, c 0 and (B ) standard Brownian motion. For 0 0 t every given value x0 ≥ 0, equation (1) admits a unique solution; this solution is strong, i.e. adapted with respect to the natural filtration of (B ), and takes t ∗ETH Zurich, Depar