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Pricing Of Contingent Claims In A Two-Dimensional Model With Random Dividends

Author

Listed:
  • PAVEL V. GAPEEV

    (London School of Economics, Department of Mathematics, Houghton Street, London WC2A 2AE, UK)

  • MONIQUE JEANBLANC

    (Université d'Évry-Val-d'Essonne, Département de Mathématiques, rue Jarlan, F-91025 Évry Cedex, France;
    Europlace Institute of Finance, France)

Abstract

We study a model of a financial market in which two risky assets are paying dividends with rates changing their initial values to other constant ones when certain events occur. Such events are associated with the first times at which the value processes of issuing firms, modeled by geometric Brownian motions, fall to some prescribed levels. The asset price dynamics are described by exponential diffusion processes with random drift rates and independent driving Brownian motions. We derive closed form expressions for rational values of European contingent claims, under full and partial information.

Suggested Citation

  • Pavel V. Gapeev & Monique Jeanblanc, 2009. "Pricing Of Contingent Claims In A Two-Dimensional Model With Random Dividends," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 12(08), pages 1091-1104.
    • Handle: RePEc:wsi:ijtafx:v:12:y:2009:i:08:n:s0219024909005592
    DOI: 10.1142/S0219024909005592
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    Cited by:

    1. Pavel V. Gapeev & Monique Jeanblanc, 2019. "Defaultable Claims In Switching Models With Partial Information," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-18, June.

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