Pricing options on the maximum or the minimum of several assets with default risk

Jiayi Zhang and Ke Zhou

The North American Journal of Economics and Finance, 2025, vol. 75, issue PA

Abstract: This paper presents analytical solutions for options on the maximum or the minimum of several assets with counterparty default risk before maturity, including derivations of several specific Greeks. To derive the solutions, we provide the joint distribution of the minimum value of one Brownian motion and the terminal values of all Brownian motions for correlated multidimensional Brownian motion. We then conduct a numerical analysis to examine the effects of counterparty risk on option prices.

Keywords: Multi-asset options; Options on the maximum; Options on the minimum; Default risk; Reflection principle (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824001979

DOI: 10.1016/j.najef.2024.102272

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