Modeling and Valuation of Default Risk of Forward-start Options

摘要

Usually, modeling of default risk has focused on the valuation of defaultable bonds and on the case of unilateral default. This paper presents a theoretical model of defaultable forward-start options. Based on the intensity approach in the model, we use defaultable credit agreements (CAs) to generalize the notion of forward-start options to a setting with default risk, taking the possibility of unilateral and bilateral default into account, and to valuate the default risk.