Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments March 6, 2023 erstellt
Beschreibung:
This paper proposes an intensity-based model to price spread options with default risk. Default risk is captured by a Cox process, whose intensity is correlated with the volatility (two underlying assets). In addition, a general correlation between the intensity and the volatility (two underlying assets) is allowed. We obtain an analytical expression of approximated prices of vulnerable spread options using the probability measure-change method. Finally, numerical examples are performed to demonstrate the accuracy of the approximation and illustrate the effect of default risk