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

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  • Bi, Hongwei
  • Wang, Guanying
  • Wang, Xingchun

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.

Suggested Citation

  • Bi, Hongwei & Wang, Guanying & Wang, Xingchun, 2019. "Valuation of catastrophe equity put options with correlated default risk and jump risk," Finance Research Letters, Elsevier, vol. 29(C), pages 323-329.
    • Handle: RePEc:eee:finlet:v:29:y:2019:i:c:p:323-329
    DOI: 10.1016/j.frl.2018.08.014
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    Cited by:

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    2. Chen, Jun-Home & Lian, Yu-Min & Liao, Szu-Lang, 2022. "Pricing catastrophe equity puts with counterparty risks under Markov-modulated, default-intensity processes," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    3. Wang, Xingchun, 2020. "Catastrophe equity put options with floating strike prices," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    4. Wang, Xingchun, 2019. "Valuation of new-designed contracts for catastrophe risk management," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

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    More about this item

    Keywords

    Catastrophe equity put options; Markov modulated poisson process; Default risk;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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