Existence and uniqueness of solutions to the inverse boundary crossing problem for diffusions

We study the inverse boundary crossing problem for diffusions. Given a diffusion process $X_t$, and a survival distribution $p$ on $[0,\infty)$, we demonstrate that there exists a boundary $b(t)$ such that $p(t)=\mathbb{P}[τ>t]$, where $τ$ is the first hitting time of $X_t$ to the boundary $b(t)$. The approach taken is analytic, based on solving a parabolic variational inequality to find $b$. Existence and uniqueness of the solution to this variational inequality were proven in earlier work. In this paper, we demonstrate that the resulting boundary $b$ does indeed have $p$ as its boundary crossing distribution. Since little is known regarding the regularity of $b$ arising from the variational inequality, this requires a detailed study of the problem of computing the boundary crossing distribution of $X_t$ to a rough boundary. Results regarding the formulation of this problem in terms of weak solutions to the corresponding Kolmogorov forward equation are presented.

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