English

An explicit Skorokhod embedding for spectrally negative Levy processes

Probability 2008-03-27 v3

Abstract

We present an explicit solution to the Skorokhod embedding problem for spectrally negative L\'evy processes. Given a process XX and a target measure μ\mu satisfying an explicit admissibility condition we define functions \f±\f_\pm such that the stopping time T=inf{t>0:Xt{\f(Lt),\f+(Lt)}}T = \inf\{t>0: X_t \in \{-\f_-(L_t), \f_+(L_t)\}\} induces XTμX_T\sim \mu. We also treat versions of TT which take into account the sign of the excursion straddling time tt. We prove that our stopping times are minimal and we describe criteria under which they are integrable. We compare our solution with the one proposed by Bertoin and Le Jan (1992) and we compute explicitly their general quantities in our setup. Our method relies on some new explicit calculations relating scale functions and the It\^o excursion measure of XX. More precisely, we compute the joint law of the maximum and minimum of an excursion away from 0 in terms of the scale function.

Keywords

Cite

@article{arxiv.math/0703597,
  title  = {An explicit Skorokhod embedding for spectrally negative Levy processes},
  author = {Jan Obloj and Martijn Pistorius},
  journal= {arXiv preprint arXiv:math/0703597},
  year   = {2008}
}

Comments

This is the final version of the paper that has been accepted for publication in J. Theor. Probab. In this new version several typos were corrected and Lemma 6(iii) [now Lemma 5(iii)] was modified. The original publication is available at http://www.springerlink.com