Closed-form pricing formula for exchange option with credit risk

Geonwoo Kim; Eunho Koo

doi:10.1016/j.chaos.2016.06.005

Closed-form pricing formula for exchange option with credit risk

Geonwoo Kim, Eunho Koo

School of Natural Sciences

Yonsei University

Research output: Contribution to journal › Article › peer-review

26 Scopus citations

Abstract

In this paper, we study the valuation of Exchange option with credit risk. Since the over-the-counter (OTC) markets have grown rapidly in size, the counterparty default risk is very important and should be considered for the valuation of options. For modeling of credit risk, we use the structural model of Klein [13]. We derive the closed-form pricing formula for the price of the Exchange option with credit risk via the Mellin transform and provide the experiment results to illustrate the important properties of option with numerical graphs.

Original language	English
Pages (from-to)	221-227
Number of pages	7
Journal	Chaos, Solitons and Fractals
Volume	91
DOIs	https://doi.org/10.1016/j.chaos.2016.06.005
State	Published - 1 Oct 2016

Keywords

Credit risk
Exchange option
Mellin transform

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10.1016/j.chaos.2016.06.005

Cite this

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title = "Closed-form pricing formula for exchange option with credit risk",

abstract = "In this paper, we study the valuation of Exchange option with credit risk. Since the over-the-counter (OTC) markets have grown rapidly in size, the counterparty default risk is very important and should be considered for the valuation of options. For modeling of credit risk, we use the structural model of Klein [13]. We derive the closed-form pricing formula for the price of the Exchange option with credit risk via the Mellin transform and provide the experiment results to illustrate the important properties of option with numerical graphs.",

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AB - In this paper, we study the valuation of Exchange option with credit risk. Since the over-the-counter (OTC) markets have grown rapidly in size, the counterparty default risk is very important and should be considered for the valuation of options. For modeling of credit risk, we use the structural model of Klein [13]. We derive the closed-form pricing formula for the price of the Exchange option with credit risk via the Mellin transform and provide the experiment results to illustrate the important properties of option with numerical graphs.

KW - Credit risk

KW - Exchange option

KW - Mellin transform

UR - https://www.scopus.com/pages/publications/84973888880

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DO - 10.1016/j.chaos.2016.06.005

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JO - Chaos, Solitons and Fractals

JF - Chaos, Solitons and Fractals

ER -

Closed-form pricing formula for exchange option with credit risk

Abstract

Keywords

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