Pricing formulae for constant proportion debt obligation notes: The Laplace transform technique

Date

2014-03-15

Author

Cekic, A. I.
Uğur, Ömür

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In this paper we derive closed form pricing formulae for the constant proportion debt obligation (CPDO) by using the Laplace transform technique. First, we present the pricing equation as a combination of a pricing problem (conditional expectation) and a static part that depends only on time. Then, we indicate that the pricing problem is in fact a pricing of a barrier option written on the shortfall. Hence, we derive explicit solutions of such barrier option problems when the shortfall follows either a diffusion or a double exponential jump diffusion process. Finally, we illustrate and discuss the results using numerical applications.

Subject Keywords

Constant Proportional Debt Obligation, Laplace Transform, Double Exponential Jump Diffusion Process

URI

https://hdl.handle.net/11511/31499

Journal

JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS

DOI

https://doi.org/10.1016/j.cam.2013.06.006

Collections

Graduate School of Applied Mathematics, Article

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Citation Formats

A. I. Cekic and Ö. Uğur, “Pricing formulae for constant proportion debt obligation notes: The Laplace transform technique,” JOURNAL OF COMPUTATIONAL AND APPLIED MATHEMATICS, pp. 362–370, 2014, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/31499.