Some new infinite series expansions for the first passage time densities in a jump diffusion model with phase-type jumps

Abstract

We propose for the first time some explicit closed-form Laguerre series expansion formulas for the first passage time density functions of a jump diffusion model. Suppose that the jumps in the model are phase-type distributed. In contrast to existing methods in the literature based on numerical Laplace transform inversion, the proposed formulas are in analytical closed-form and simple to implement. Two different methods are proposed to compute the Laguerre coefficients. Various numerical examples are also given to show the effectiveness of our method.