Counterparty credit risk and derivatives pricing

• 成果类型: Article
• 署名作者: Li, Gang; Zhang, Chu
• 署名单位: Hong Kong Polytechnic University; Hong Kong University of Science & Technology
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.04.011
• 发表日期: 2019
• 页码: 647-668
• 关键词: Counterparty credit risk; Mitigating mechanism; Options pricing with vulnerability; Derivative warrants

摘要

We derive a model with qualitative implications for options pricing under counterparty credit risk and provide empirical evidence using the data from the Hong Kong derivatives market during 2005-2014. We find that the log-price difference between a derivative warrant with counterparty credit risk and an otherwise identical option without counterparty credit risk is significantly and negatively associated with the credit default swap spread on the warrant issuer. We also find that the prices of out-of-the-money put warrants are more sensitive to credit risk than those of other warrants. Our results show counterparty credit risk matters for derivative pricing. (C) 2019 Elsevier B.V. All rights reserved.