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Parisian Time of Reflected Brownian Motion With Drift on Rays
Version 1
: Received: 16 October 2020 / Approved: 19 October 2020 / Online: 19 October 2020 (14:43:03 CEST)
A peer-reviewed article of this Preprint also exists.
Dassios, A.; Zhang, J. Parisian Time of Reflected Brownian Motion with Drift on Rays and Its Application in Banking. Risks 2020, 8, 127. Dassios, A.; Zhang, J. Parisian Time of Reflected Brownian Motion with Drift on Rays and Its Application in Banking. Risks 2020, 8, 127.
Abstract
In this paper, we study the Parisian time of a reflected Brownian motion with drift on a finite collection of rays. We derive the Laplace transform of the Parisian time using a recursive method, and provide an exact simulation algorithm to sample from the distribution of the Parisian time. The paper is motivated by the settlement delay in the real-time gross settlement (RTGS) system. Both the central bank and the participating banks in the system are concerned about the liquidity risk, and are interested in the first time that the duration of settlement delay exceeds a predefined limit, we reduce this problem to the calculation of the Parisian time. The Parisian time is also crucial in the pricing of Parisian type options; to this end, we will compare our results with the existing literature.
Keywords
Brownian motion; Parisian time; exact simulation; real-time gross settlement system
Subject
Computer Science and Mathematics, Algebra and Number Theory
Copyright: This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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