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[Keyword: Arsenic] AND [All Categories: Surface Science] (1)	29 Mar 2025	Run
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chapterNo Access
THE ANALYSIS OF A VARIABLE DEFAULT BOUNDARY TO THE PRICING OF VULNERABLE EUROPEAN OPTIONS
- CHIH-YAO LO,
- YU-TENG CHANG, and
- PIN-CHANG CHEN
Information Sciences 200701 Jul 2007
Preview Abstract
This paper investigates the significance of using a variable default boundary when pricing European Black-Scholes options that are subjected to credit risks. We apply numerical method and combine Klein [1] and Johnson and Stulz [2] to link the payout ratio proportionally to the assets of the option writer. We also link the payout ratio to the value of the assets of the writer. Numerical examples compare our results with Klein [1] and Johnson and Stulz [2] based on alternative assumptions, and illustrate when the application of variable default boundary becomes important.

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