Farzad Alavi Fard Seminar
- 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.