Journal of East China Normal University(Natural Sc ›› 2014, Vol. 2014 ›› Issue (1): 13-20, 26.

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Vulnerable European option pricing with the time-dependent for double jump-diffusion process

LYU Li-juan,  ZHANG Xing-yong   

  1. College of Sciences, China University of Mining and Technology, Xuzhou Jiangsu \ 221116, China
  • Received:2013-03-01 Revised:2013-06-01 Online:2014-01-25 Published:2015-09-25

Abstract: Based on Merton's structured credit risk model,
derivatives pricing with rival unilateral default risk was studied
in this paper. Assuming that underlying asset price and
assets-liabilities of sellers follow double jump-diffusion process,
where risk-free interest rate $r(t)$, volatility of asset
$\sigma(t)$ and dividend yield $d(t)$ are time-dependent, vulnerable
European options pricing model under double jump-diffusion process
was established using the structured method, the analytical
expressions of options price was obtained using It\^{o} lemma and
the trunformation of the equivalent martingale measure.

Key words: two jump-diffusion process, credit risks, vulnerable European option pricing

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