The effect of extreme asset prices to the valuation of zero coupon bond with jump diffusion processes

In general, the logarithmic returns of asset prices are not normally distributed. Brownian motion and normal distribution have been widely used in the Black-Scholes-Merton bond framework to model the return of assets. Merton has provided a formula for the valuation of a zero coupon bond where the as...

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Bibliographic Details
Published inJournal of physics. Conference series Vol. 1217; no. 1; pp. 12075 - 12080
Main Authors Maruddani, D A I, Abdurakhman, Safitri, D
Format Journal Article
LanguageEnglish
Published Bristol IOP Publishing 01.05.2019
Subjects
Brownian motion
Diffusion welding
Extreme values
Normal distribution
Prices
Statistical analysis
Zero coupon bonds
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Summary:In general, the logarithmic returns of asset prices are not normally distributed. Brownian motion and normal distribution have been widely used in the Black-Scholes-Merton bond framework to model the return of assets. Merton has provided a formula for the valuation of a zero coupon bond where the asset price process contains a continuous Poisson jump component, in addition to a continuous log-normally distributed component. This paper applies jump diffusion processes to derive some bond parameters, these are equity and default probability, when the asset prices have extreme values.
ISSN:1742-6588
1742-6596
DOI:10.1088/1742-6596/1217/1/012075