The Pricing of Options with Default Risk

Authors

  • HERB JOHNSON,

  • RENÉ STULZ

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    • Graduate School of Administration, University of California, Davis, and Graduate School of Business, University of Chicago, respectively. René Stulz is on leave from the Ohio State University. We are grateful for useful conversations with Steve Buser and Cliff Smith and for useful comments from Ron Masulis, Phelim Boyle, and participants at a seminar at the Ohio State University.


ABSTRACT

This paper considers the pricing of options with default risk. The comparative statics of such options can differ from those of ordinary options, and early exercise of such American call options can be optimal. Several examples of options with default risk are considered.

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