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On pricing of vulnerable barrier options and vulnerable double barrier options

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  • Wang, Heqian
  • Zhang, Jiayi
  • Zhou, Ke

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.

Suggested Citation

  • Wang, Heqian & Zhang, Jiayi & Zhou, Ke, 2022. "On pricing of vulnerable barrier options and vulnerable double barrier options," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001811
    DOI: 10.1016/j.frl.2021.102100
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    References listed on IDEAS

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    More about this item

    Keywords

    Vulnerable options; Barrier options; Double barrier options; Credit risk;
    All these keywords.

    JEL classification:

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

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