IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v13y2013i8p1211-1223.html
   My bibliography  Save this article

A closed-form approximation for valuing European basket warrants under credit risk and interest rate risk

Author

Listed:
  • Yung-Ming Shiu
  • Pai-Lung Chou
  • Jen-Wen Sheu

Abstract

Over the past few years, many financial institutions have actively traded basket warrants in the over-the-counter market. Prior research has proposed an approach to valuing single-stock options subject to credit. However, this approach cannot be applied directly to the case of basket warrants. Using the martingale method, we propose a closed-form approximation for valuing European basket warrants using a continuous-time model, with credit risk and interest rate risk considered simultaneously. Finally, several numerical examples are utilized to demonstrate the characteristics of basket warrants under credit risk.

Suggested Citation

  • Yung-Ming Shiu & Pai-Lung Chou & Jen-Wen Sheu, 2013. "A closed-form approximation for valuing European basket warrants under credit risk and interest rate risk," Quantitative Finance, Taylor & Francis Journals, vol. 13(8), pages 1211-1223, July.
    • Handle: RePEc:taf:quantf:v:13:y:2013:i:8:p:1211-1223
    DOI: 10.1080/14697688.2012.741693
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2012.741693
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697688.2012.741693?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Xingchun & Zhang, Han, 2022. "Pricing basket spread options with default risk under Heston–Nandi GARCH models," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    2. Ziming Dong & Dan Tang & Xingchun Wang, 2023. "Pricing vulnerable basket spread options with liquidity risk," Review of Derivatives Research, Springer, vol. 26(1), pages 23-50, April.
    3. Jin, Xing & Yang, Cheng-Yu, 2016. "Efficient estimation of lower and upper bounds for pricing higher-dimensional American arithmetic average options by approximating their payoff functions," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 65-77.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:13:y:2013:i:8:p:1211-1223. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.