The Pricing of Double Trigger Catastrophe Put Option with Default Risk
Linzhi Jiao *
School of Mathematics, Liaoning Normal University, Dalian, China.
Zhenhua Bao
School of Mathematics, Liaoning Normal University, Dalian, China.
*Author to whom correspondence should be addressed.
Abstract
This study was present a catastrophe put option pricing model that considers default risk. The default of the option issuer can occur at any time before the maturity, and there is a correlation between the total assets of the option issuer, the underlying stock and the zero coupon bond. The explicit solution of option pricing is obtained when the interest rate process follows the Vasicek model and relevant proofs are given. Finally, the value changes under different parameters are discussed through a numerical analysis.
Keywords: Catastrophe option, Vasicek interest rate model, default risk.