On pricing of vulnerable barrier options and vulnerable double barrier options

Heqian Wang, Jiayi Zhang and Ke Zhou

Finance Research Letters, 2022, vol. 44, issue C

Abstract: In this paper, we provide analytical pricing formulae of vulnerable barrier options and vulnerable double barrier options. To obtain the price of vulnerable double barrier options, we give the joint distribution of a special range of the two-dimensional correlated Brownian motions. This result is of independent interest. Based on the derived formula, we numerically analyze the impacts of counterparty risk on option prices.

Keywords: Vulnerable options; Barrier options; Double barrier options; Credit risk (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001811

DOI: 10.1016/j.frl.2021.102100

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