Valuation of catastrophe equity put options with correlated default risk and jump risk

Hongwei Bi, Guanying Wang and Xingchun Wang ()

Finance Research Letters, 2019, vol. 29, issue C, 323-329

Abstract: In this paper, the pricing formula for catastrophe equity put options with correlated jump risk and default risk is derived. In the proposed model, we assume that catastrophic events and non-catastrophic events both follow Markov modulated Poisson processes and all assets are affected by these two kinds of events. Finally, a numerical example is performed to show the impacts of correlated jump risk and default risk.

Keywords: Catastrophe equity put options; Markov modulated poisson process; Default risk (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:29:y:2019:i:c:p:323-329

DOI: 10.1016/j.frl.2018.08.014

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