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Pricing Vulnerable Options in a Mixed Fractional Brownian Motion with Jumps

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  • Panhong Cheng
  • Zhihong Xu
  • Florentino Borondo

Abstract

A new framework for pricing European vulnerable options is developed in the case where the underlying stock price and firm value follow the mixed fractional Brownian motion with jumps, respectively. This research uses the actuarial approach to study the pricing problem of European vulnerable options. An analytic closed-form pricing formula for vulnerable options with jumps is obtained. For the purpose of understanding the pricing model, some properties of this pricing model are discussed in the paper. Finally, we compare and analyze the pricing results of different pricing models and discuss the influences of basic parameters on the pricing results of our proposed model by using numerical simulations, and the corresponding economic analyses about these influences are given.

Suggested Citation

  • Panhong Cheng & Zhihong Xu & Florentino Borondo, 2021. "Pricing Vulnerable Options in a Mixed Fractional Brownian Motion with Jumps," Discrete Dynamics in Nature and Society, Hindawi, vol. 2021, pages 1-15, December.
    • Handle: RePEc:hin:jnddns:4875909
    DOI: 10.1155/2021/4875909
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