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Credit Engineering for Bankers, 2nd Edition by Johnathan Mun, Morton Glantz

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Chapter 16 Options Valuation

Chapter Outline

  • Options Valuation: Behind the Scenes 409
  • Binomial Lattices 413
  • The Look and Feel of Uncertainty 415
    • Options Provide Value in the Face of Risk and Uncertainty 417
    • Binomial Lattices as a Discrete Simulation of Uncertainty 419
    • Granularity Leads to Precision 422
    • Illustrations in Credit Analysis: Credit Default Swaps and Credit Spread Options 427
    • Illustrations in Debt Analysis: Vasicek Debt Option Valuation 427
    • Illustrations in Debt Analysis: Vasicek Price and Yield of Risky Debt 429

Credit analysis is closely linked to options valuation. For instance, there are credit spread options, credit default swaps, and other exotic derivatives that are based on or triggered by credit events. In fact, in ...

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