Valuation of European-style vulnerable options under the non-affine stochastic volatility and double exponential jump

Shoude Huang and Xunxiang Guo

Chaos, Solitons & Fractals, 2022, vol. 158, issue C

Abstract: The pricing of European-style vulnerable option when the price process of the underlying asset follows non-affine stochastic volatility and double exponential jump is investigated. An approximate expression for the joint characteristic function of the log-price of underlying asset and the log-value of counterparty asset is derived. An analytical approximate price of European-style vulnerable option is also obtained by means of Fourier-cosine method. Numerical experiments are given to confirm the accuracy and efficiency of the proposed result for pricing the European-style vulnerable option compared with Monte Carlo simulation. Finally, sensitivity analysis is presented to further explain the theoretical results.

Keywords: Vulnerable option; Fourier-cosine method; Stochastic volatility; Double exponential jump (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:158:y:2022:i:c:s0960077922002132

DOI: 10.1016/j.chaos.2022.112003

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