Pricing Options with Credit Risk in Markovian Regime-Switching Markets

Table 1

The parameter values.

Parameter name	Value in state 𝑒1	Value in state 𝑒2
Volatility of 𝑆	𝜎11=0.2	𝜎12=0.4
Jump intensity	𝜈1=15	𝜈2=30
Speed of reversion of 𝑟	𝑏1=2	𝑏2=1
Long-term average of 𝑟	𝑎1/𝑏1=0.04	𝑎2/𝑏2=0.02
Volatility of 𝑟	𝜎21=0.15	𝜎22=0.3
Speed of reversion of 𝜆	𝛽1=1.5	𝛽2=2
Long-term average of 𝜆	𝛼1/𝛽1=0.01	𝛼2𝛽2=0.02
Volatility of 𝜆	𝜎31=0.25	𝜎32=0.45
Initial stock price	𝑆0=100
Initial interest rate	𝑟0=0.04
Initial default intensity	𝜆0=0.5
Mean jump size	𝜇𝐽=0
Standard deviation of jump size	𝜎𝐽=0.1