Weak convergence of equity derivatives pricing with default risk

DOI10.1016/J.SPL.2015.04.015zbMATH Open1328.91278arXiv1504.02543OpenAlexW2128856694MaRDI QIDQ893958FDOQ893958

Authors: Gaoxiu Qiao, Qiang Yao 

Publication date: 23 November 2015

Published in: Statistics \& Probability Letters (Search for Journal in Brave)

Abstract: This paper presents a discrete--time equity derivatives pricing model with default risk in a no--arbitrage framework. Using the equity--credit reduced form approach where default intensity mainly depends on the firm's equity value, we deduce the Arrow--Debreu state prices and the explicit pricing result in discrete time after embedding default risk in the pricing model. We prove that the discrete--time defaultable equity derivatives pricing has convergence stability, and it converges weakly to the continuous--time pricing results.

Full work available at URL: https://arxiv.org/abs/1504.02543

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zbMATH Keywords

weak convergencedefault riskhazard process

Mathematics Subject Classification ID

Convergence of probability measures (60B10) Derivative securities (option pricing, hedging, etc.) (91G20) Financial applications of other theories (91G80)

Cites Work

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Cited In (2)

• Title not available (Why is that?)
• Weak time-derivatives and no-arbitrage pricing

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