Analytical valuation of Asian options with counterparty risk under stochastic volatility models
Xingchun Wang ()
Journal of Futures Markets, 2020, vol. 40, issue 3, 410-429
In this paper, we consider Asian options with counterparty risk under stochastic volatility models. We propose a simple way to construct stochastic volatility models through the market factor channel. In the proposed framework, we obtain an explicit pricing formula of Asian options with counterparty risk and illustrate the effects of systematic risk on Asian option prices. Specially, the U‐shaped and inverted U‐shaped curves appear when we keep the total risk of the underlying asset and the issuer's assets unchanged, respectively.
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jfutmk:v:40:y:2020:i:3:p:410-429
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