Boundary conditions for nonlocal one-sided pseudo-differential operators and the associated stochastic processes
Volume 596 / 2024
Abstract
We connect boundary conditions for one-sided pseudo-differential operators with the generators of modified one-sided Lévy processes. On the one hand, this allows modellers to use appropriate boundary conditions with confidence when restricting the modelling domain. On the other hand, it allows for numerical techniques based on differential equation solvers to obtain fast approximations of densities or other statistical properties of restricted one-sided Lévy processes encountered, for example, in finance. In particular, we identify a new nonlocal mass conserving boundary condition by showing it corresponds to a time-changed process, removing the time the process spends outside the domain. We treat all combinations of killing, reflecting and excursion-omitting boundary conditions.
In Part I we show wellposedness of the backward and forward Cauchy problems with a one-sided pseudo-differential operator with boundary conditions as generator. We do so by showing convergence of Feller semigroups based on grid point approximations of the modified Lévy process.
In Part II we show that the limiting Feller semigroup is indeed the semigroup associated with the modified Lévy process by showing continuity of the modifications with respect to the Skorokhod topology.
