Working Paper
Expectations of functions of stochastic time with application to credit risk modeling
Gordy, Michael B.; Huang, Min; Szerszen, Pawel J.; Costin, Ovidiu (2013)
We develop two novel approaches to solving for the Laplace transform of a time-changed stochastic process. We discard the standard assumption that the background process (Xt) is Levy. Maintaining the assumption that the business clock (Tt) and the background process are independent, we develop two different series solutions for the Laplace transform of the time-changed process X-tildet=X(Tt). In fact, our methods apply not only to Laplace transforms, but more generically to expectations of smooth functions of random time. We apply the methods to introduce stochastic time change to the ...
Finance and Economics Discussion Series , Paper 2013-14