Computation of the Survival Probability of Brownian Motion with Drift When the Absorbing Boundary is a Piecewise Affine or Piecewise Exponential Function of Time

摘要

A closed form formula is provided for the probability, in a closed time interval, that an arithmetic Brownian motion remains under or above a sequence of three affine, one-sided boundaries (equivalently, for the probability that a geometric Brownian motion remains under or above a sequence of three exponential, one-sided boundaries). The numerical evaluation of this formula can be done instantly and with the accuracy required for all practical purposes. The method followed can be extended to sequences of absorbing boundaries of higher dimension. It is also applied to sequences of two-sided boundaries.