Pricing vulnerable path-dependent options using integral transforms

Abstract

In the over-the-counter (OTC) markets, the holders of many contracts are vulnerable to counterparty credit risk. Because of this issue, vulnerable options must be considered. In addition, in a financial environment, the pricing of path-dependent options yields many interesting mathematical challenges. In this paper, we study the pricing of vulnerable path dependent options using double Mellin transforms to investigate an explicit (closed) form pricing formula or semi-analytic formula in each path-dependent option. (C) 2016 Elsevier B.V. All rights reserved.