Lie Symmetries Methods in Boundary Crossing Problems for Diffusion Processes

Abstract

This paper uses Lie symmetry methods to analyze boundary crossing probabilities for a large class of diffusion processes. We show that if the Fokker–Planck–Kolmogorov equation has non-trivial Lie symmetry, then the boundary crossing identity exists and depends only on parameters of process and symmetry. For time-homogeneous diffusion processes we found the necessary and sufficient conditions of the symmetries’ existence. This paper shows that if a drift function satisfies one of a family of Riccati equations, then the problem has nontrivial Lie symmetries. For each case we present symmetries in explicit form. Based on obtained results, we derive two-parametric boundary crossing identities and prove its uniqueness. Further, we present boundary crossing identities between different process. We show, that if the problem has 6 or 4 group of symmetries then the first passage time density to any boundary can be explicitly represented in terms of the first passage time by a Brownian motion or a Bessel process. Many examples are presented to illustrate the method.