南方科技大学知识苑(SUSTech KC): PRICING VULNERABLE OPTIONS UNDER A JUMP-DIFFUSION MODEL WITH FAST MEAN-REVERTING STOCHASTIC VOLATILITY

题名	PRICING VULNERABLE OPTIONS UNDER A JUMP-DIFFUSION MODEL WITH FAST MEAN-REVERTING STOCHASTIC VOLATILITY
作者	He，Wan Hua 1; Wu，Chufang2,3 ; Gu，Jia Wen3 ; Ching，Wai Ki 2; Wong，Chi Wing 2
通讯作者	Wu，Chufang
发表日期	2022-05-01
DOI	10.3934/jimo.2021057
发表期刊	Journal of Industrial and Management Optimization 影响因子和分区
ISSN	1547-5816
EISSN	1553-166X
卷号	18 期号:3页码:2077-2094
摘要	In this paper, we propose a model to price vulnerable European options where the dynamics of the underlying asset value and the counterparty’s asset value follow two jump-diffusion processes with fast mean-reverting stochastic volatility. First, we derive an equivalent risk-neutral measure and transfer the pricing problem into solving a partial differential equation (PDE) by the Feynman-Kac formula. We then approximate the solution of the PDE by pricing formulas with constant volatility via multi-scale asymptotic method. The pricing formula for vulnerable European options is obtained by applying a two-dimensional Laplace transform when the dynamics of the underlying asset value and the counter-party’s asset value follow two correlated jump-diffusion processes with constant volatilities. Thus, an analytic approximation formula for the vulnerable European options is derived in our setting. Numerical experiments are given to demonstrate our method by using Laplace inversion.
关键词	asymptotic analysis jump-diffusion Ornstein-Uhlenbeck (OU) process stochastic volatility Vulnerable option
相关链接	[Scopus记录]
收录类别	SCI ; SSCI ; EI
语种	英语
学校署名	通讯
资助项目	National Natural Science Foundation of China[11671158];National Natural Science Foundation of China[11801262];
WOS记录号	WOS:000700616700001
EI入藏号	20221912072739
EI主题词	Costs ; Diffusion ; Economics ; Financial markets ; Laplace transforms ; Numerical methods ; Risk assessment ; Stochastic models ; Stochastic systems
EI分类号	Control Systems:731.1 ; Cost and Value Engineering; Industrial Economics:911 ; Accidents and Accident Prevention:914.1 ; Mathematics:921 ; Mathematical Transformations:921.3 ; Numerical Methods:921.6 ; Probability Theory:922.1 ; Systems Science:961 ; Social Sciences:971
Scopus记录号	2-s2.0-85129410035
来源库	Scopus
引用统计	被引频次[WOS]：3
成果类型	期刊论文
条目标识符	http://sustech.caswiz.com/handle/2SGJ60CL/334422
专题	理学院_数学系
作者单位	1.Advanced Modeling and Applied Computing Laboratory,Department of Mathematics The University of Hong Kong,Hong Kong,Pokfulam Road,Hong Kong 2.Department of Mathematics,Hong Kong,The University of Hong Kong Pokfulam Road,Hong Kong 3.Department of Mathematics,Southern University of Science and Technology Shenzhen,China
通讯作者单位	数学系
推荐引用方式 GB/T 7714	He，Wan Hua,Wu，Chufang,Gu，Jia Wen,et al. PRICING VULNERABLE OPTIONS UNDER A JUMP-DIFFUSION MODEL WITH FAST MEAN-REVERTING STOCHASTIC VOLATILITY[J]. Journal of Industrial and Management Optimization,2022,18(3):2077-2094.
APA	He，Wan Hua,Wu，Chufang,Gu，Jia Wen,Ching，Wai Ki,&Wong，Chi Wing.(2022).PRICING VULNERABLE OPTIONS UNDER A JUMP-DIFFUSION MODEL WITH FAST MEAN-REVERTING STOCHASTIC VOLATILITY.Journal of Industrial and Management Optimization,18(3),2077-2094.
MLA	He，Wan Hua,et al."PRICING VULNERABLE OPTIONS UNDER A JUMP-DIFFUSION MODEL WITH FAST MEAN-REVERTING STOCHASTIC VOLATILITY".Journal of Industrial and Management Optimization 18.3(2022):2077-2094.