PRICING EQUITY DERIVATIVES SUBJECT TO BANKRUPTCY

We solve in closed form a parsimonious extension of the Black–Scholes–Merton model with bankruptcy where the hazard rate of bankruptcy is a negative power of the stock price. Combining a scale change and a measure change, the model dynamics is reduced to a linear stochastic differential equation who...

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Veröffentlicht in:	Mathematical finance 2006-04, Vol.16 (2), p.255-282
1. Verfasser:	Linetsky, Vadim
Format:	Artikel
Sprache:	eng
Schlagworte:	Asian options Bankruptcy Brownian exponential functionals Corporate bonds Corporate debt Credit Credit risk credit spread Derivatives Differential equations Financial economics Financial models hazard rate implied volatility skew Mathematical economics Mathematical models Options on stocks Risk management Schrödinger operator with Morse potential Securities prices spectral expansions Statistical analysis Stochastic models Stock options Studies Volatility
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