Abstract
In the last two decades, the market of credit derivativeshas expanded rapidly, and the importance of pricing problemsfor credit derivatives has been recognized especially in the last decade.Among these securities, the pricing problems of credit derivativeswith an early exercise, such as American put options,have not received enough attention. In view of this need, this paper develops a continuous stochastic modelof American put options on defaultable bonds.The method of obtaining a solution is based on a new result of the optimalstopping problem for a diffusion process with a jump.Some characterizations of American put options are providedusing partial differential equations.
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Muroi, Y. Pricing American Put Options on Defaultable Bonds. Asia-Pacific Financial Markets 9, 217–239 (2002). https://doi.org/10.1023/A:1024129531195
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DOI: https://doi.org/10.1023/A:1024129531195