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Department of Applied Finance and Actuarial Studies

Farzad Alavi Fard Seminar

Research Seminars - business and economics
  • Topic: Analytical Pricing of Vulnerable Options under a Generalized Jump-Diffusion Model
  • Speaker: Farzad Alavi Fard, Lecturer in Finance, Economics, Finance and Marketing, RMIT University
  • Venue:E4A 623
  • When: 23rd May, 2014, (Fri)
  • Time: 11am - 12pm (Morning Tea from 10.30am)

In this paper we propose a model to price European vulnerable options. We formulate the credit risk in a reduced form model and the dynamics of the spot price in a completely random generalized jump diffusion model, which nests a number of important models in finance. We obtain a close form formulation for the price of the option by 1) determining an equivalent martingale measure, using the Esscher transform and 2) manipulating the pay-off structure of the option four further times, by using the Esscher-Girsanov transform.


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