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Review of Derivatives Research
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11-06-2021

Valuing fade-in options with default risk in Heston–Nandi GARCH models

Author: Xingchun Wang

Published in: Review of Derivatives Research | Issue 1/2022

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Abstract

The article delves into the valuation of fade-in options with default risk within the framework of Heston–Nandi GARCH models. It introduces a pricing model that accounts for both default risk and the path-dependent nature of fade-in options, providing a closed-form pricing formula. The study highlights the significant impact of default risk on option prices, particularly for deep-in-the-money options, and examines how the number of fade-in dates affects option pricing. The research is supported by numerical examples that illustrate these effects, offering valuable insights for professionals in the field of financial risk management.
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Metadata
Title
Valuing fade-in options with default risk in Heston–Nandi GARCH models
Author
Xingchun Wang
Publication date
11-06-2021
Publisher
Springer US
Published in
Review of Derivatives Research / Issue 1/2022
Print ISSN: 1380-6645
Electronic ISSN: 1573-7144
DOI
https://doi.org/10.1007/s11147-021-09179-3

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