Valuing spread options with counterparty risk and jump risk

Zelei Li and Xingchun Wang ()

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: In this paper, we investigate spread options with counterparty risk in a jump-diffusion model. Due to the fact that there is no closed-form formula of spread options with counterparty risk, we obtain analytical expressions of lower and upper bounds by employing the measure-change technique. Finally, we numerically check the accuracy of the bounds and analyze the impacts of counterparty risk and jump risk on spread option prices.

Keywords: Spread options; Counterparty risk; Jump risk; Measure change (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301650

DOI: 10.1016/j.najef.2020.101269

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