Abstract
This paper considers the stochastic models for pricing credit-sensitive financial derivatives using the joint equity-credit modeling approach. The modeling of credit risk is embedded into a stochastic asset dynamics model by adding the jump-to-default (JtD) feature. We discuss the class of stochastic affine jump-diffusion (AJD) models with JtD and apply the models to price defaultable European options and credit default swaps. Numerical studies of the equity-credit models are also considered. The impact on the pricing behavior of derivative products with the added JtD feature is examined.
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