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Valuing spread options with counterparty risk and jump risk

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  • Li, Zelei
  • Wang, Xingchun

Abstract

In this paper, we investigate spread options with counterparty risk in a jump-diffusion model. Due to the fact that there is no closed-form formula of spread options with counterparty risk, we obtain analytical expressions of lower and upper bounds by employing the measure-change technique. Finally, we numerically check the accuracy of the bounds and analyze the impacts of counterparty risk and jump risk on spread option prices.

Suggested Citation

  • Li, Zelei & Wang, Xingchun, 2020. "Valuing spread options with counterparty risk and jump risk," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301650
    DOI: 10.1016/j.najef.2020.101269
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    References listed on IDEAS

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    Cited by:

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    3. Dingding Dong & Xianda Qian & Xingchun Wang, 2025. "Pricing Basket Spread Options With Default Risk Under GARCH‐Jump Models," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(5), pages 441-454, May.
    4. 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).
    5. Ting He, 2025. "Spread Option Pricing Method Based on Nonparametric Predictive Inference Copula," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 44(5), pages 1755-1766, August.
    6. Song, Shiyu & Tang, Dan & Xu, Guangli & Yin, Xunbai, 2023. "An analytical GARCH valuation model for spread options with default risk," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 1-20.
    7. Cai, Chengyou & Wang, Xingchun & Yu, Baimin, 2024. "Pricing vulnerable spread options with liquidity risk under Lévy processes," The North American Journal of Economics and Finance, Elsevier, vol. 72(C).
    8. Alessandro Ramponi, 2022. "Spread Option Pricing in Regime-Switching Jump Diffusion Models," Mathematics, MDPI, vol. 10(9), pages 1-15, May.

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    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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