Pricing Formula for Exotic Options with Assets Exposed to Counterparty Risk
This paper gives analytical formulas for lookback and barrier options on underlying assets that are exposed to a counterparty risk. The counterparty risk induces a drop in the asset price, but the asset can still be traded after this default time. A novel technique is developed to valuate the lookba...
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| Format: | Article |
| Language: | English |
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Hindawi Limited
2017-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2017/5239808 |
| Summary: | This paper gives analytical formulas for lookback and barrier options on underlying assets that are exposed to a counterparty risk. The counterparty risk induces a drop in the asset price, but the asset can still be traded after this default time. A novel technique is developed to valuate the lookback and barrier options by first conditioning on the predefault and the postdefault time and then obtain the unconditional analytic formulas for their prices. |
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| ISSN: | 1026-0226 1607-887X |