On the First Hitting Time Density of an Ornstein-Uhlenbeck Process

Abstract

In this paper, we study the classical problem of the first passage hitting density of an Ornstein--Uhlenbeck process. We give two complementary (forward and backward) formulations of this problem and provide semi-analytical solutions for both. The corresponding problems are comparable in complexity. By using the method of heat potentials, we show how to reduce these problems to linear Volterra integral equations of the second kind. For small values of $t$, we solve these equations analytically by using Abel equation approximation; for larger $t$ we solve them numerically. We also provide a comparison with other known methods for finding the hitting density of interest, and argue that our method has considerable advantages and provides additional valuable insights.