Less vulnerable valuation of vulnerable options

Abstract In this article, closed form exact formulae are provided for two-asset vulnerable options with continuous default risk and partial recovery, stochastic default boundary, stochastic interest rate and jump-diffusion dynamics of the underlying assets. The single asset case is also covered. Moreover, default risk does not necessarily extend over the entire option’s lifetime and can be defined on any time interval before expiry. Numerical results are provided and show that option prices obtained in this framework significantly differ from prices obtained in a standard model.

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Publication Details

Journal
Annals of Operations Research
Published
2025-08-27
DOI
https://doi.org/10.1007/s10479-025-06755-w
Citations
1
Primary Topic
Stochastic processes and financial applications
Type
article
Field-Weighted Citation Impact
2.21
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article

Less vulnerable valuation of vulnerable options

Tristan Guillaume
1 citations
Annals of Operations Research
Stochastic processes and financial applications
2.21
article

Less vulnerable valuation of vulnerable options

Tristan Guillaume
article en
1 citations

Abstract

Abstract In this article, closed form exact formulae are provided for two-asset vulnerable options with continuous default risk and partial recovery, stochastic default boundary, stochastic interest rate and jump-diffusion dynamics of the underlying assets. The single asset case is also covered. Moreover, default risk does not necessarily extend over the entire option’s lifetime and can be defined on any time interval before expiry. Numerical results are provided and show that option prices obtained in this framework significantly differ from prices obtained in a standard model.

Annals of Operations Research
CY Cergy Paris Université (FR)
Openalex Percentile: Top 11%
Stochastic processes and financial applications
2.21
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