Closed-form pricing formula for exchange option with credit risk

Geonwoo Kim and Eunho Koo

Chaos, Solitons & Fractals, 2016, vol. 91, issue C, 221-227

Abstract: In this paper, we study the valuation of Exchange option with credit risk. Since the over-the-counter (OTC) markets have grown rapidly in size, the counterparty default risk is very important and should be considered for the valuation of options. For modeling of credit risk, we use the structural model of Klein [13]. We derive the closed-form pricing formula for the price of the Exchange option with credit risk via the Mellin transform and provide the experiment results to illustrate the important properties of option with numerical graphs.

Keywords: Exchange option; Credit risk; Mellin transform (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:91:y:2016:i:c:p:221-227

DOI: 10.1016/j.chaos.2016.06.005

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