Pricing the vulnerable American options

This thesis extends the models of Johnson and Stulz (1997), Klein (1996) and Klein and Inglis (2001) to price vulnerable American options. Most existing models mainly focus on the pricing of vulnerable European options, especially call options. This thesis focuses on vulnerable American options and especially put options. The model incorporates the default boundary at the time of maturity as in Klein and Inglis (2001), and allows the default barrier before maturity changes with the underlying asset price. The thesis compares the vulnerable American options with vanilla American options and studies some interesting properties of vulnerable American options under the assumption, which are quite different from those of vanilla American options.