The pricing of options and other derivatives which are subject to the default risk of the writer usually requires the calibration of a sophisticated model and substantial effort in determining the input parameters. We propose a very simple method to incorporate correlated credit risk into the...

In this paper we present a model for valuing European and American options, which incorporates both default and interest rate risks. We develop a framework that permits evaluation of three kinds of options: (i) options issued by default-free counterparties on risky bonds, (ii) options issued by...

This paper analyzes the relationship between a pension fund with conditionally indexed de.ned benefit liabilities and its sponsor, using contingent claims analysis. As pension funds run a mismatch risk, future surpluses and shortfalls will occur. Surpluses are divided between beneficiaries and...