e are modelling the quantities
is dollar price of a foreign currency (exchange rate), see the section
is intensity of sovereign default pertaining to the foreign currency. We use
the following equations under the risk neutral
are stochastic processes,
are standard Brownian motions under the risk neutral measure,
are constant parameters,
is the random jump magnitude and
is the martingale normalization constant.
are stochastic riskless rates of accrual on dollar and foreign MMAs. We will
also use the notations
These processes are determined by the term structure of bond
is modelled as a normal variable
is a Poisson process, see the section
are subsequently assumed to be 0.