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Valuation of vulnerable American options with correlated credit risk

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  • Lung-Fu Chang
  • Mao-Wei Hung

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    File URL: http://hdl.handle.net/10.1007/s11147-007-9007-5
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    Bibliographic Info

    Article provided by Springer in its journal Review of Derivatives Research.

    Volume (Year): 9 (2006)
    Issue (Month): 2 (September)
    Pages: 137-165

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    Handle: RePEc:kap:revdev:v:9:y:2006:i:2:p:137-165

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    Web page: http://www.springerlink.com/link.asp?id=102989

    Related research

    Keywords: American options; Derivatives; Default; Credit risk; Multi-exercisable; Martingale; G13;

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    References

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    1. Hull, John & White, Alan, 1995. "The impact of default risk on the prices of options and other derivative securities," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 299-322, May.
    2. Klein, Peter & Inglis, Michael, 2001. "Pricing vulnerable European options when the option's payoff can increase the risk of financial distress," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 993-1012, May.
    3. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
    4. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    6. Chung, San-Lin, 2002. "Pricing American Options on Foreign Assets in a Stochastic Interest Rate Economy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(04), pages 667-692, December.
    7. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
    8. Jarrow, Robert A & Turnbull, Stuart M, 1995. " Pricing Derivatives on Financial Securities Subject to Credit Risk," Journal of Finance, American Finance Association, vol. 50(1), pages 53-85, March.
    9. Trigeorgis, Lenos, 1991. "A Log-Transformed Binomial Numerical Analysis Method for Valuing Complex Multi-Option Investments," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 309-326, September.
    10. Geske, Robert & Johnson, Herb E, 1984. " The American Put Option Valued Analytically," Journal of Finance, American Finance Association, vol. 39(5), pages 1511-24, December.
    11. Johnson, Herb & Stulz, Rene, 1987. " The Pricing of Options with Default Risk," Journal of Finance, American Finance Association, vol. 42(2), pages 267-80, June.
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