Approximating the first passage time density from data using generalized Laguerre polynomials

This paper analyzes a method to approximate the first passage time probability density function which turns to be particularly useful if only sample data are available. The method relies on a Laguerre-Gamma polynomial approximation and iteratively looks for the best degree of the polynomial such that a normalization condition is preserved. The proposed iterative algorithm relies on simple and new recursion formulae involving first passage time moments. These moments can be computed recursively from cumulants, if they are known. In such a case, the approximated density can be used also for the maximum likelihood estimates of the parameters of the underlying stochastic process. If cumulants are not known, suitable unbiased estimators relying on ?-statistics might be employed. To check the feasibility of the method both in fitting the density and in estimating the parameters, the first passage time problem of a geometric Brownian motion is considered.

Automated summary

This paper presents a method to approximate the first passage time probability density function using Laguerre-Gamma polynomial approximation. An iterative algorithm is proposed to find the best degree of the polynomial that preserves a normalization condition. The algorithm relies on recursion formulas involving first passage time moments, which can be computed recursively from cumulants. The method is tested on the first passage time problem of a geometric Brownian motion to demonstrate its feasibility in fitting the density and estimating the parameters.