Following the framework of Klein [1996. Journal of Banking and Finance 20, 1211–1229], this paper presents an improved method of pricing vulnerable options under jump diffusion assumptions about the underlying stock prices and firm values which are appropriate in many business situations. In...

This paper studies the implications of model uncertainty under stochastic volatility model for equilibrium asset pricing. We derive the equilibrium equity premium and risk-free rate in a pure-exchange economy with one representative agent who is averse not only to risk but also to model...