Defaultable Game Options in a Hazard Process Model

Defaultable Game Options in a Hazard Process Model

1 Department of Applied Mathematics, Illinois Institute of Technology, Chicago, IL 60616, USA 2 Département de Mathématiques, Université d’Évry Val d’Essonne, 91025 Évry Cedex, France 3 Europlace Institute of Finance, Palais Brongniart-28 Place de la Bourse, 75002 Paris, France 4 School of Mathematics and Statistics, University of New South Wales, Sydney, NSW 2052, Australia 5 Faculty of Mathem...

Valuation and Hedging of Defaultable Game Options in a Hazard Process Model

Defaultable Options in a Markovian Intensity Model of Credit Risk

Note to the Reader: This is an updated version of the paper forthcoming under the same title in the journal Mathematical Finance, meant for consistency with the latest developments of the companion paper [4].

Pricing Options on Defaultable Stocks

We develop stock option price approximations for a model which takes both the risk of default and the stochastic volatility into account. We also let the intensity of defaults be influenced by the volatility. We show that it might be possible to infer the risk neutral default intensity from the stock option prices. Our option price approximation has a rich implied volatility surface structure a...

Pricing and Hedging Options on Defaultable Assets

In general, contingent claims on assets which may default during the duration of the contract cannot be priced and hedged consistently. This is due to the fact that the possibility of a default event brings in an extra uncertain factor, and there are therefore too few assets to construct a hedge against all sources of uncertainty. In this paper we show that consistent pricing and hedging is sti...