Weak convergence of equity derivatives pricing with default risk

DOI10.1016/J.SPL.2015.04.015MaRDI QIDQ893958zbMATHOpenAlexFDO

Authors Gaoxiu Qiao, Qiang Yao

Publication date 23 November 2015

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

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

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)

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.

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Cites work

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Cited in

(2)

• scientific article; zbMATH DE number 3972042 (Why is no real title available?)
• Weak time-derivatives and no-arbitrage pricing

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