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Default probability of American lookback option in a mixed jump-diffusion model

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  • Yang, Zhaoqiang

Abstract

This paper considers the default probability of American lookback option in a mixed jump-diffusion model, where the underlying asset price has to cross two-sided predetermined strikes to activate the American lookback option. We study a default problem with the bankruptcy time being defined as the first passage time of the underlying asset price. By solving a system of coupled MJD-fBm, we obtain an explicit formula for the Laplace transform of the default time. Some numerical results are given for illustration.

Suggested Citation

  • Yang, Zhaoqiang, 2020. "Default probability of American lookback option in a mixed jump-diffusion model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    • Handle: RePEc:eee:phsmap:v:540:y:2020:i:c:s0378437119318205
    DOI: 10.1016/j.physa.2019.123242
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    References listed on IDEAS

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    Cited by:

    1. Deng, Guohe, 2020. "Pricing perpetual American floating strike lookback option under multiscale stochastic volatility model," Chaos, Solitons & Fractals, Elsevier, vol. 141(C).

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