Pricing approximations and error estimates for local Lévy-type models with default

preprint2014arXivOpen access

Abstract

We find approximate solutions of partial integro-differential equations, which arise in financial models when defaultable assets are described by general scalar Lévy-type stochastic processes. We derive rigorous error bounds for the approximate solutions. We also provide numerical examples illustrating the usefulness and versatility of our methods in a variety of financial settings.

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