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Discrete Dynamics in Nature and Society
Volume 2017, Article ID 5239808, 8 pages
Research Article

Pricing Formula for Exotic Options with Assets Exposed to Counterparty Risk

School of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu 611130, China

Correspondence should be addressed to Li Yan; nc.ude.efuws.4102@ly

Received 2 November 2016; Revised 24 December 2016; Accepted 13 March 2017; Published 27 March 2017

Academic Editor: Leonid Shaikhet

Copyright © 2017 Li Yan. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


This paper gives analytical formulas for lookback and barrier options on underlying assets that are exposed to a counterparty risk. The counterparty risk induces a drop in the asset price, but the asset can still be traded after this default time. A novel technique is developed to valuate the lookback and barrier options by first conditioning on the predefault and the postdefault time and then obtain the unconditional analytic formulas for their prices.