Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and Default

Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and Default

Power exchange option is an exotic option which combines power option and exchange option. In this paper, we consider the pricing of the power exchange option under exchange rate volatility risk and issuing company bankruptcy risk. Meanwhile, considering the major events between the two countries, w...

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Main Authors: Kaili Xiang, Peng Hu, Jie Shen
Format: Article
Language:English
Published: Hindawi Limited 2020-01-01
Series:Mathematical Problems in Engineering
Online Access:http://dx.doi.org/10.1155/2020/4268196
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spelling doaj-a4457a528e7c4425bc2fc391a266aaef2020-11-25T03:31:06ZengHindawi LimitedMathematical Problems in Engineering1024-123X1563-51472020-01-01202010.1155/2020/42681964268196Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and DefaultKaili Xiang0Peng Hu1Jie Shen2School of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu, ChinaSchool of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu, ChinaHexa Asset Management Co. Ltd., Shanghai, ChinaPower exchange option is an exotic option which combines power option and exchange option. In this paper, we consider the pricing of the power exchange option under exchange rate volatility risk and issuing company bankruptcy risk. Meanwhile, considering the major events between the two countries, we add the Poisson jump process to the option model in order to reflect the impact of sudden factors on the price of transnational derivatives in the international market. According to the no-arbitrage principle, a mathematical model for pricing such problems is established, and explicit solutions are obtained. The numerical examples show that the model established in this paper is effective.http://dx.doi.org/10.1155/2020/4268196
collection DOAJ
language English
format Article
sources DOAJ
author Kaili Xiang
Peng Hu
Jie Shen
spellingShingle Kaili Xiang
Peng Hu
Jie Shen
Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and Default
Mathematical Problems in Engineering
author_facet Kaili Xiang
Peng Hu
Jie Shen
author_sort Kaili Xiang
title Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and Default
title_short Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and Default
title_full Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and Default
title_fullStr Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and Default
title_full_unstemmed Pricing of Power Exchange Option with Jumps under the Double Risk of Exchange and Default
title_sort pricing of power exchange option with jumps under the double risk of exchange and default
publisher Hindawi Limited
series Mathematical Problems in Engineering
issn 1024-123X
1563-5147
publishDate 2020-01-01
description Power exchange option is an exotic option which combines power option and exchange option. In this paper, we consider the pricing of the power exchange option under exchange rate volatility risk and issuing company bankruptcy risk. Meanwhile, considering the major events between the two countries, we add the Poisson jump process to the option model in order to reflect the impact of sudden factors on the price of transnational derivatives in the international market. According to the no-arbitrage principle, a mathematical model for pricing such problems is established, and explicit solutions are obtained. The numerical examples show that the model established in this paper is effective.
url http://dx.doi.org/10.1155/2020/4268196
work_keys_str_mv AT kailixiang pricingofpowerexchangeoptionwithjumpsunderthedoubleriskofexchangeanddefault
AT penghu pricingofpowerexchangeoptionwithjumpsunderthedoubleriskofexchangeanddefault
AT jieshen pricingofpowerexchangeoptionwithjumpsunderthedoubleriskofexchangeanddefault
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