Pricing counterparty default risks: Applications to FRNs and vulnerable options

This paper provides simple closed-form pricing models for floating-rate notes and vulnerable options under the counterparty risk framework of [Jarrow, R., Yu, F., 2001. Counterparty risk and the pricing of default risk. Journal of Finance 56, 1765-1799]. After deriving closed-form pricing models for them, this paper illustrates the impact of the default intensity of counterparty on the prices of floating-rate notes and vulnerable options. Numerical examples show that the default risk of counterparty is an important factor of the value of floating-rate notes and vulnerable options. ? 2004 Elsevier Inc. All rights reserved.
Publisher
Elsevier BV
Issue Date
2005
Language
ENG
Citation

INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS, v.14, no.3, pp.376 - 392

ISSN
1057-5219
URI
http://hdl.handle.net/10203/4617
Appears in Collection
MT-Journal Papers(저널논문)
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