Valuation of options on the maximum of two prices with default risk under GARCH models

Xingchun Wang ()

The North American Journal of Economics and Finance, 2021, vol. 57, issue C

Abstract: In this paper, we work under GARCH models to value options on the maximum or the minimum of two prices. In addition, we consider not only two underlying asset prices but also geometric average ones. Further, default risk is also incorporated in a reduced-form model. In the proposed framework, closed-form pricing formulae of options on the maximum with or without default risk are derived and then used to perform numerical examples.

Keywords: Options on the maximum; Stochastic correlation; GARCH models; Default risk (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:57:y:2021:i:c:s1062940821000541

DOI: 10.1016/j.najef.2021.101422

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