We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm’s values … default probability. Our simulation results indicate that the stochastic volatility model tends to predict higher default … probabilities than the corresponding Merton model if a firm’s credit quality is not too low. Otherwise the stochastic volatility …

stochastic volatility, jumps in the underlying and the price process and a stochastic target level as well as with deterministic …

, namely the mean reversion in asset price, multi-factor stochastic volatility (SV) and simultaneous jumps in prices and … volatility factors. Closed-form solutions are derived for vanilla variance swaps and gamma swaps while the solutions for corridor … better capture the implied volatility surface from option data. The empirical results of this paper also show that the …