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Pricing options on the maximum or the minimum of several assets with default risk

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  • Zhang, Jiayi
  • Zhou, Ke

Abstract

This paper presents analytical solutions for options on the maximum or the minimum of several assets with counterparty default risk before maturity, including derivations of several specific Greeks. To derive the solutions, we provide the joint distribution of the minimum value of one Brownian motion and the terminal values of all Brownian motions for correlated multidimensional Brownian motion. We then conduct a numerical analysis to examine the effects of counterparty risk on option prices.

Suggested Citation

  • Zhang, Jiayi & Zhou, Ke, 2025. "Pricing options on the maximum or the minimum of several assets with default risk," The North American Journal of Economics and Finance, Elsevier, vol. 75(PA).
    • Handle: RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824001979
    DOI: 10.1016/j.najef.2024.102272
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    References listed on IDEAS

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    JEL classification:

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

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