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Valuing spread options with counterparty risk and jump risk

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  • Li, Zelei
  • Wang, Xingchun

Abstract

In this paper, we investigate spread options with counterparty risk in a jump-diffusion model. Due to the fact that there is no closed-form formula of spread options with counterparty risk, we obtain analytical expressions of lower and upper bounds by employing the measure-change technique. Finally, we numerically check the accuracy of the bounds and analyze the impacts of counterparty risk and jump risk on spread option prices.

Suggested Citation

  • Li, Zelei & Wang, Xingchun, 2020. "Valuing spread options with counterparty risk and jump risk," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301650
    DOI: 10.1016/j.najef.2020.101269
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    Cited by:

    1. Wang, Xingchun & Zhang, Han, 2022. "Pricing basket spread options with default risk under Heston–Nandi GARCH models," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    2. Song, Shiyu & Tang, Dan & Xu, Guangli & Yin, Xunbai, 2023. "An analytical GARCH valuation model for spread options with default risk," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 1-20.
    3. Ziming Dong & Dan Tang & Xingchun Wang, 2023. "Pricing vulnerable basket spread options with liquidity risk," Review of Derivatives Research, Springer, vol. 26(1), pages 23-50, April.
    4. Cai, Chengyou & Wang, Xingchun & Yu, Baimin, 2024. "Pricing vulnerable spread options with liquidity risk under Lévy processes," The North American Journal of Economics and Finance, Elsevier, vol. 72(C).
    5. Xingchun Wang, 2021. "Pricing vulnerable options with jump risk and liquidity risk," Review of Derivatives Research, Springer, vol. 24(3), pages 243-260, October.
    6. Alessandro Ramponi, 2022. "Spread Option Pricing in Regime-Switching Jump Diffusion Models," Mathematics, MDPI, vol. 10(9), pages 1-15, May.

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    More about this item

    Keywords

    Spread options; Counterparty risk; Jump risk; Measure change;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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