Valuing spread options with counterparty risk and jump risk |
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| Institution: | 1. Center for Financial Engineering and Risk Management, School of Insurance, and Guangdong Regional Financial Policy Research Center, Guangdong University of Finance, Guangzhou 510521, China;2. Department of Mathematics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada;3. Innovation Center for Computable Modeling in Management Science, Tianjin University of Finance and Economics, Tianjin 300222, China;4. School of Business, Hunan University, Changsha 410082, China;1. Department of Finance, Fujian Business University, 19, Huang Pu, Gulou District, Fuzhou, Fujian, People''s Republic of China;2. Department of Finance, College of Economics, Jinan University, No. 601 Huangpu Avenue West, Guanzhou, Guandong 510632, People’s Republic of China;1. Department of Actuarial Science & Mathematics, Sungkyunkwan University, 25-2, Sungkyunkwan-Ro, Jongno-Gu, Seoul 03063, Republic of Korea;2. School of Business, Ewha Womans University 52, Ewhayeodae-gil, Seodaemun-Gu, Seoul 03760, Republic of Korea;3. Department of Mathematics, Saint Joseph’s University, 5600 City Avenue, Philadelphia, PA 19131, USA;1. Nanchang Institute of Technology, China;2. School of Finance, Shanghai University of Finance and Economics, China;3. SHU-UTS SILC Business School, Shanghai University, China;1. Department of Mathematical Sciences, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 34141, Republic of Korea;2. School of Business Administration, Ulsan National Institute of Science and Technology (UNIST), Ulsan 44919, Republic of Korea |
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| 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. |
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| Keywords: | Spread options Counterparty risk Jump risk Measure change |
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