On moments of integral exponential functionals of additive processes
Let be a real-valued additive process. In this paper we study the integral exponential functionals of namely, the functionals of the form
Our main interest is focused on the moments of of order In case the Laplace exponent of exists for positive values of the parameter, we
derive a recursive (in ) integral equation for the moments. This yields a multiple integral formula for the
entire positive moments of . From these results emerges
an easy-to-apply sufficient condition for the finiteness of all the entire
moments of . The corresponding formulas for Lévy processes are also presented. As examples we discuss the
finiteness of the moments of when is the first hit
process associated with a diffusion. In particular, we discuss
Bessel processes and geometric
Keywords: Additive process, process with independent increments, Lévy process, subordinator, first hitting time, diffusion, Bessel process, geometric Brownian motion
AMS Classification: 60J75, 60J60. 60E10
Let be a real valued additive process, i.e., a strong Markov process with independent increments having càdlàg sample paths which are continuous in probability (cf. Sato  p.3). Important examples of additive processes are:
(a) Deterministic time transformations of Lévy processes, that is, if is a Lévy process and is an increasing continuous function such that then is an additive process.
(b) Integrals of deterministic functions with respect to a Lévy process, that is, if is a Lévy process and is a measurable function then
is an additive process.
(c) First hit processes of one-dimensional diffusions, that is, if is a diffusion taking values in starting from 0, and drifting to then
is an additive process.
Of course, Lévy processes themselves constitute a large and important class of additive processes.
The basic tool in our analysis is the Laplace exponent of The structure of this is revealed in the the Lévy-Khintchine representation of the infinitely divisible distribution of We recall this briefly from Sato  Theorem 9.8 p.52. Therein the characteristic function of is given as follows
is continuous, is continuous and non-decreasing, and is a measure on such that
for all and
for all and
for all with
Notice that since is assumed to be continuous in probability it follows that is for all continuous.
The aim of this paper is to study integral exponential functionals of i.e., functionals of the form
in particular, the moments of We refer also to a companion paper  where stochastic calculus is used to study the Mellin transforms of when the underlying additive process is a semi martingale with absolutely continuous characteristics.
The main result of the paper is a recursive equation, see (7) in Theorem 2.3, which generalizes the formula for Lévy processes presented in Urbanik  Example 3.4 p.309 and Carmona, Petit and Yor  Proposition 3.3 p.87, see also Bertoin and Yor  Section 3.1 p.195. This formula for Lévy processes is also displayed below in (18). In Epifani, Lijoi and Prünster  an extension of the Lévy process formula to integral functionals up to of increasing additive processes is discussed, and their formula (7) in Proposition 5 p.798 can be seen as a special case of our formula (15) – as we found out after finishing our work. Such an extension is also indicated in  on p.196. In spite of these closely related results we feel that it is worthwhile to provide a more thorough discussion of this interesting topic. We also give new (to our best knowledge ) applications of the formulas for first hit processes of diffusions and present explicit results for Bessel processes and geometric Brownian motions.
In mathematical finance the interest in integral exponential functionals is coming from the studies of perpetuities containing liabilities, perpetuities under the influence of economical factors (see, for example, Kardaras and Robertson ), and also of pricing Asian options and related questions (see, for instance, Dufresne , Carr and Wu , Jeanblanc, Yor, Chesney  and references therein). We refer to the survey paper  for further results, potential applications, and many references, in particular, for Lévy processes but also for additive processes. For applications of increasing additive processes in Bayesian statistics we refer to  and references therein. Additive processes can also be found in representations of self-decompasable laws, see Sato  and Jeanblanc, Pitman and Yor .
The paper is structured as follows. Next section contains the main results of the paper. In particular, the recursive equation for the entire moments is established. We also give formulas for Lévy processes. The paper is concluded with examples on first hitting time processes. It is proved that for Bessel processes drifting to the integral exponential functional of the first hit process has all the moments and for geometric Brownian motion the corresponding functional has only some moments.
2 Main results
Let be an additive process and define for and
In this section we derive a recursive integral equation for under the following assumption:
(A) has for all a finite Laplace exponent for positive values of the parameter, that is, there exists for all and for all a function such that
If is a Lévy process we write (with a slight abuse of the notation) formula (4) as
The functions and are clearly connected as As pointed out in Introduction, is continuous and, therefore also is continuous. This property has an important – obvious – consequence formulated in the next lemma which is easily proved, e.g., with Jensen’s inequality.
Under assumption (A), for it holds for all
Assumption (A) is valid, in particular, for increasing additive processes. Important examples of these are the first hit processes for diffusions (cf. (c) in Introduction). Moments of exponential functionals of some first hit processes are discussed in the next section. Assumption (A) holds also for additive processes of type (a) in Introduction if the underlying Lévy process fullfills Assumption (A).
In the case when is a semi-martingale with absolutely continuous characteristics, the sufficient condition (see Proposition 1 in ) for the existence of the Laplace exponent as in Assumption (A) in terms of the measure is as follows: for and
The main result of the paper is given in the next theorem. In the proof we are using similar ideas as in .
For and the moments are finite and satisfy the recursive equation
We start with by introducing the shifted functional via
and we have
The independence of increments implies that and are independent. Hence,
Clearly, a.s. when Hence, applying monotone convergence in (9) yields
From (8) evoking the independence of and we have
For positive integer values on the recursive equation (7) can be solved explicitly to obtain the formula (15) in the next proposition. However, we offer another proof highlighting the symmetry properties present in the expressions of the moments of the exponential functional.
For and it holds
In particular, if and only if the multiple integral on the right hand side of (15) is finite.
Let and consider
where, in the third step, we use that is symmetric. By the independence of the increments
In the next corollary we give a sufficient condition for to be finite for all .
Variable has all the positive moments if
for all .
Formula (18) below extends the corresponding formula for subordinators found , see also  p.195, for Lévy processes satisfying Assumption (A). It is a straightforward implification of Proposition 2.6.
Let be a Lévy process with the Laplace exponent as in (6) and define Then
where is the first hitting time of 0 for a Bessel process of dimension starting from and means ”is identical in law with”. In particular, it holds
where is a gamma-distributed random variable with rate 1 and shape We refer to  for a discussion showing how the functional on the left hand side of (19) arises as the present value of a perpetuity in a discrete model after a limiting procedure. Since the Lévy exponent in this case is
the criterium in Corollary 2.8 yields
which readily can also be checked from (20).
3 First hit processes of one-dimensional diffusions
We recall first some facts concerning the first hitting times of one-dimensional (or linear) diffusions. Let now be a linear diffusion taking values in an interval To fix ideas assume that equals or or and that
Assume and consider for the first hitting time
Defining it is easily seen – since is a strong Markov process – that is an increasing purely discontinuous additive process starting from 0. Moreover, from assumption (21) it follows that a.s. for all The process satisfies Assumption (A) in Section 2. Indeed, using the well known characterization of the Laplace transform of we have
where is the expectation associated with starting from and is a unique (up to a multiple) positive and increasing solution of the ODE
satisfying the appropriate boundary condition at in case and is reflecting. In (23) denotes the differential operator associated with In the absolutely continuous case is of the form
where is the scale function, and is a kernel such that for all and
Representation (24) clearly reveals the structure of as a process with independent increments. Comparing with the notation in Introduction, we have
We now pass to present examples of exponential functionals of first hit processes. Firstly, we study Bessel processes satisfying (21) and show, in particular, that the exponential functional of the first hit process has all the moments. In our second example it is seen that the exponential functional of the first hit process of geometric Brownian motion has only finitely many moments depending on the values of the parameters.
Bessel processes. Let be a Bessel process starting from . The differential operator associated with is given by
where is called the dimension parameter. From  we extract the following information
for the boundary point is entrance-not-exit and (21) holds,
for the boundary point is non-singular and (21) holds when the boundary condition at is reflection,
for (21) does not hold.
In case when (21) is valid the Laplace exponent for the first hit process is given for and by
where is the expectation associated with when started from and denotes the modified Bessel function of the first kind. For simplicity, we wish to study the exponential functional of when To find the Laplace exponent when we let in (26). For this, recall that for
which clearly is integrable at Consequently, by Corollary 2.7, the integral functional
has all the (positive) moments.
Geometric Brownian motion. Let be a geometric Brownian motion with parameters and , i.e.,
where is a standard Brownian motion initiated at 0. Since a.s. when it follows
and a.s. if
Consequently, condition (21) is valid if and only if Since we consider the first hitting times of the points Consider
We assume now that and Let Then is identical in law with the first hitting time of for Brownian motion with drift starting from 0. Consequently, letting we have for
where is the expectation associated with when started from 1 and
is the increasing fundamental solution for Brownian motion with drift (see  p.132). Notice that the additive process is a deterministic time change of the first hit process of Brownian motion with drift, which is a subordinator. We use now Proposition 2.6 to study the moments of the perpetual integral functional
To simply the notation (cf. (3.2)) introduce
By formula (15) the th moment is given by
This being a sufficient condition for the finiteness of we have
Consider now the case Then
i.e., smaller the volatility (i.e. ) more moments of exist, as expected. Moreover, in this case
Acknowledgement. This research was partially supported by Defimath project of the Research Federation of ”Mathématiques des Pays de la Loire”, by PANORisk project ”Pays de la Loire” region, and by the Magnus Ehrnrooth Foundation, Finland.
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