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http://dx.doi.org/10.14317/jami.2021.677

THE PRICING OF VULNERABLE POWER OPTIONS WITH DOUBLE MELLIN TRANSFORMS  

HA, MIJIN (Department of Mathematics, Pusan National University)
LI, QI (Department of Mathematics, Pusan National University)
KIM, DONGHYUN (Department of Mathematics, Pusan National University)
YOON, JI-HUN (Department of Mathematics, Pusan National University)
Publication Information
Journal of applied mathematics & informatics / v.39, no.5_6, 2021 , pp. 677-688 More about this Journal
Abstract
In the modern financial market, the scale of financial instrument transactions in the over-the-counter (OTC) market are increasing. However, in this market, there exists a counterparty credit risk. Herein, we obtain a closed-form solution of power option with credit risks, using the double Mellin transforms. We also use a numerical method to compare the differentiations of option price between the closed-form solution and Monte-Carlo simulation. The result shows that the closed-form solution is precise. In addition, the option's price is sensitive to the exponent of the maturity stock price.
Keywords
Option pricing; default risk; power option; Mellin transforms; Monte-Carlo simulation;
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