On the Pricing of Vulnerable Foreign Equity Options with Stochastic Volatility in an Intensity-Based Model

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In this study, we investigate the pricing of two types of vulnerable foreign equity options using an intensity-based model. It is considered that the intensity process consists of both systematic and idiosyncratic components. In addition, we assume that the underlying asset processes follow a two-factor stochastic volatility model. Under the proposed model, we obtain the explicit pricing formulas of vulnerable foreign equity options. Finally, we provide some numerical examples to demonstrate how credit risk and stochastic volatility affect option prices.