Boundary crossing probabilities for diffusions with piecewise linear drifts

Jinghai Shao, Liqun Wang

Published 2012-05-14, updated 2015-10-27Version 2

We propose an approach to approximate the boundary crossing probabilities for general one-dimensional diffusion processes, and derive the convergence rate for this approximation scheme. There results are based on the explicit expression of the Laplace transforms of the first passage densities for diffusions with piecewise linear drifts. The proposed method is applied to a reliability problem where the standard degradation model based on Wiener process is extended to diffusion processes with piecewise linear drifts.