Barrier options pricing under the jump to default extended CEV process

In this paper, we develop the analytical solution to the Barrier option pricing problem under the Jump-to-default extended CEV model of Carr and Linetsky. We argue that the JDCEV model is well suited to study path-dependent option products as Barrier option, as it naturally incorporates the empirically observed relationships between the stock price with stock price volatility and credit spreads. Our analytical formulae allow fast and accurate calculation of prices and hedge ratios of barrier options under the JDCEV diffusion process on computer.