Phase-type fitting of scale functions for spectrally negative Levy processes

Masahiko Egami, Kazutoshi Yamazaki

Published 2010-05-01, updated 2014-01-03Version 8

We study the scale function of the spectrally negative phase-type Levy process. Its scale function admits an analytical expression and so do a number of its fluctuation identities. Motivated by the fact that the class of phase-type distributions is dense in the class of all positive-valued distributions, we propose a new approach to approximating the scale function and the associated fluctuation identities for a general spectrally negative Levy process. Numerical examples are provided to illustrate the effectiveness of the approximation method.