We consider a defaultable asset whose risk-neutral pricing dynamics are described by an exponential Lévy-type martingale. This class of models allows for a local volatility, local default intensity and a locally dependent Lévy measure. We present a pricing method for Bermudan options based on an analytical approximation of the characteristic function combined with the COS method. Due to a special form of the obtained characteristic function the price can be computed using a fast Fourier transform-based algorithm resulting in a fast and accurate calculation.

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International Congress on Actuarial Science and Quantitative Finance
Centrum Wiskunde & Informatica, Amsterdam (CWI), The Netherlands

Borovykh, A.I, Pascucci, A, & Oosterlee, C.W. (2016). Bermudan option valuation under state-dependent models. In Springer Proceedings in Mathematics and Statistics (pp. 127–138). doi:10.1007/978-3-319-66536-8_6