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Mixed-fractional Models to Credit Risk Pricing

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  • Xichao Sun
  • Litan Yan

Abstract

This paper proposes a mixed fractional Brownian motion version of a well-known credit risk pricing structural model: the Merton model. Assume that the value of the firm obeys to a geometric mixed fractional Brownian motion, default probability, pricing of bonds, values of stocks and credit spreads are derived. Figures are given to illustrate the effectiveness of the result and show that the mixed-fractional models to credit risk pricing is a reasonable one.

Suggested Citation

  • Xichao Sun & Litan Yan, 2012. "Mixed-fractional Models to Credit Risk Pricing," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 1(3), pages 1-7.
    • Handle: RePEc:spt:stecon:v:1:y:2012:i:3:f:1_3_7
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    Cited by:

    1. He, Xinjiang & Chen, Wenting, 2014. "The pricing of credit default swaps under a generalized mixed fractional Brownian motion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 404(C), pages 26-33.
    2. Zhaoqiang Yang, 2017. "Efficient valuation and exercise boundary of American fractional lookback option in a mixed jump-diffusion model," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 4(02n03), pages 1-29, June.
    3. 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).
    4. Chen, Wenting & Yan, Bowen & Lian, Guanghua & Zhang, Ying, 2016. "Numerically pricing American options under the generalized mixed fractional Brownian motion model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 451(C), pages 180-189.

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