Unified Credit‐Equity Modeling

Multivariate Subordination of Markov Processes With Financial Applications

“…In particular, a contingent claim that pays one dollar at expiration t if all the firms in a given set survive can be interpreted as a multiname equity derivative with the payoff This generalizes to the multiname setting the view taken in the unified single‐name credit‐equity modeling literature (Linetsky ; Carr and Linetsky ; Mendoza‐Arriaga et al. ; Mendoza‐Arriaga and Linetsky ; Linetsky and Mendoza‐Arriaga ) that considers credit derivatives as special cases of equity derivatives written on defaultable stocks that can fall to zero in the event of bankruptcy.…”

Pricing Double Barrier Options on Homogeneous Diffusions: A Neumann Series of Bessel Functions Representation

“…6. Compute coefficients α m (y) and β m (y) using equations (21) and verify them using relations (25) - (28) and Remark 4. We notice that this procedure can incorporate a test for estimating an optimal M (truncation parameter for the series (13) and for the second sum in the series (12)) to be used.…”

“…1 Moreover, it nests the GBM and CEV models as special cases and, therefore, it also accommodates the aforementioned leverage effect and implied volatility skew stylized facts. The importance of linking equity derivatives markets and credit markets has thus generated a new class of hybrid credit-equity models with the aim of pricing derivatives subject to the risk of default-for other applications of jump to default models, see, for instance, [32], [29], [28], [40], [34], [33], and the references contained therein. Moreover, the new algorithms recently provided by [13] for computing truncated and raw moments of a noncentral χ 2 random variable can be also used on the pricing of barrier options under the JDCEV model considered in [14].…”