Exercise 16.4 In the BlackCox model, show that the density function of is given by where

Exercise 16.4 In the Black–Cox model, show that the density function of τ

is given by

where K

Noting that the integrand is the density function of the first passage time to the boundary K when the Brownian motion has the drift θσ², show that

where z₅ and z₆ are defined below (16.8).

Transcribed Image Text:

fr(t) = -K 2t (-K + (v - o)t)2 exp 202t