Pricing Black-Scholes options with correlated credit risk

Article Abstract:

A pricing model that computes for the value of the vulnerable Black-Scholes over-the-counter options and relates counterparty credit risk with the option's underlying asset is derived. The model assumes that the option writer can have additional liabilities. It has been designed to be easy to use and is readily verifiable using market information. Unlike previous formulae, it is adaptable to many business environments.

Econometrics & Model Building, Models, Risk (Economics), Options (Finance), Derivatives (Financial instruments), Econometrics, Pricing, Business models

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The capital gain lock-in effect with short sales constraints

Article Abstract:

An after-tax asset pricing model was constructed to examine the effect of taxes on equilibrium prices. The model was based on the assumption that investors cannot defer the taxation of capital gains by costlessly short selling tax exempt perfect substitute securities. Results provide evidence that trading rules of immediate realization of losses and voluntary deferral of gains may not be optimal.

Public Finance Activities, Capital Gains Taxes, Capital gains tax, Capital assets pricing model, Capital asset pricing model, Short selling

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Pricing vulnerable European options when the option's payoff can increase the risk of financial distress

Article Abstract:

This study examines the model that incorporates a default boundary which depends on the potential liability of the written option.

United States, Finance

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