| Summary: | 碩士 === 東海大學 === 財務金融學系 === 96 === This research extends the model of Klein (1996) and first provides the closed-form formulas to value vulnerable structured financial products (VSFPs) whose payoff link to n underlying assets. Our formulas not only allow the prices of the n underlying assets, the total debt value of the issuer and the total asset value of the issuer to be correlated, but also allow the event of default and liquidation to occur prior to the maturity of VSFPs. Additional, the recovery rate paid out in default is endogenous to our model. On the other hand, since more and more structured financial products connect their payoff with exotic options, we further extend the two-variable lattice approach proposed in Boyle (1988) and propose a four-variable lattice for valuing VSFPs which link to two-asset exotic options. Based on the result of numerical analyses, the impact of credit risk is significant to the value of VSFPs. Specifically, the value of VSFPs decreases as the number of financial inspections grows. Moreover, the price obtained from the four-variable lattice is very closed to the corresponding theoretical price. This pattern reveals that the pricing performance of our four-variable lattice is very satisfactory.
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