The Role of Jump Factor in Default Risk of Listed Company in China

Some advanced structural models of default risk have introduced jump component to reflect the abnormal jump risk, but most of them take use of the credit spread, credit default swap (CDS) spread or option price in empirical research. However, the finance derivative market and the bond market in China are undergoing very limited development, which makes it impossible to use the credit spread or CDS spread to analyze the jump risk. Therefore, combining the Option Pricing Theory with Poisson jump-diffusion model, this paper uses stock market data to indirectly describe the evolution of asset value with jump risk. After comparing with the pure diffusion model, we find out that the latter neglects the impact of jump risk and thus underestimates or overestimates the actual default probability to some extent.