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http://dx.doi.org/10.7858/eamj.2020.005

A PROBABILISTIC APPROACH FOR VALUING EXCHANGE OPTION WITH DEFAULT RISK  

Kim, Geonwoo (School of Liberal Arts, Seoul National University of Science and Technology)
Publication Information
East Asian mathematical journal / v.36, no.1, 2020 , pp. 55-60 More about this Journal
Abstract
We study a probabilistic approach for valuing an exchange option with default risk. The structural model of Klein [6] is used for modeling default risk. Under the structural model, we derive the closed-form pricing formula of the exchange option with default risk. Specifically, we provide the pricing formula of the option with the bivariate normal cumulative function via a change of measure technique and a multidimensional Girsanov's theorem.
Keywords
Exchange option; Option pricing; Probabilistic approach; Default risk;
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