Analytical valuation of vulnerable chained options

Jiayi Zhang and Ke Zhou

The North American Journal of Economics and Finance, 2024, vol. 70, issue C

Abstract: In this paper, we present analytical pricing formulae for vulnerable chained options. To derive the price, we provide the joint probability that one of the two-dimensional Brownian motions hits multiple barriers sequentially before a fixed time and the positions of both Brownian motions. Using the derived formulae, we perform numerical analysis to investigate the impacts of counterparty risk on option prices.

Keywords: Vulnerable options; Chained options; Barrier options; Credit risk (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940823001924
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:70:y:2024:i:c:s1062940823001924

DOI: 10.1016/j.najef.2023.102069

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().