A Double Exponential Jump Diffusion Process to Modelling Risky Bond Prices

20 Pages Posted: 7 Aug 2008

See all articles by Benoit Metayer

Benoit Metayer

affiliation not provided to SSRN

Date Written: December 2003

Abstract

This paper aims at providing an extension of Zhou [1997] and Black and Cox [1976] by considering the case where the default can occur at any time and the asset value dynamics is modelled by a jump diffusion process. This extension is provided by considering a special case of jump diffusion process. Following Kou and Wang [2001,2003], Lipton [2002] and Sepp [2003], we consider that the log jump sizes are random variables double asymmetric exponentially distributed. Thanks to this particular choice, quasi-explicit formula is available for the joint probability of the first passage time and the terminal value. We characterized the price of the risky bond and derived a closed form in Laplace domain. Black and Cox [1976], Zhou [1997] models and this model have been implemented and numerically compared.

Suggested Citation

Metayer, Benoit, A Double Exponential Jump Diffusion Process to Modelling Risky Bond Prices (December 2003). Available at SSRN: https://ssrn.com/abstract=498245 or http://dx.doi.org/10.2139/ssrn.498245

Benoit Metayer

affiliation not provided to SSRN

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