11. novembre 2023

The Jump-to-Default Approach in option trading, modeled by an SDE, highlights how sudden stock price drops (J) affect low strike call options, especially under high credit risk. This contrasts with the Black-Scholes model, which assumes continuous price movements. In high-risk scenarios, the market often lowers the value of these options, factoring in potential defaults, and adjusts implied volatility accordingly. #OptionPricing #CreditRisk #FinancialMarkets #TradingStrategies #InvestmentRisk