PPT Slide
Jump-diffusion process for the firm value process
where dY is a Poisson process with intensity parameter l;
P > 0 is the jump amplitude with expected value m + 1;
m is the expected instantaneous rate of change of firm value.
• Remedy the unrealistic phenomena of small short-maturity spreads
in pure diffusion firm value process. Default may occur by surprise.
• Allows for a jump process to shock the asset value process.