Vulnerable European Option Pricing for Two Jump-Diffusion Processes

The pricing of the derivatives associated with counterparty default risk is considered. Based on Merton's structured credit risk model, an explicit pricing formula of vulnerable options was derived when the underlying asset price and corporate value is assumed to follow a jump-diffusion process. A model of vulnerable option pricing is developed when the underlying asset price and corporate value is assumed to follow a jump-diffusion process, then the pricing of vulnerable option is discussed when the corporate liabilities are fixed and random were derived respectively.