Pricing Vulnerable Option under Jump-Diffusion Model with Incomplete Information
Yang Jiahui(China University of Mining and Technology), Zhou Sheng-wu(China University of Mining and Technology), Haitao Zhou(China University of Mining and Technology), Kaiqiang Guo(China University of Mining and Technology)
Cited by 5Open Access
Abstract
In this paper, the closed-form pricing formula for the European vulnerable option with credit risk and jump risk under incomplete information was derived. Noise was introduced to the option writers assets while the underlying asset price and the value of corporation were assumed to follow the jump-diffusion processes. Finally the numerical experiment showed that jumps of underlying assets would increase the value of the option, but noise of corporation value was opposite.
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