In this paper we propose the transition probability of business cyclefor the pricing of options with credit risk. In order to describe business cycles of markets, the regime switching model is considered. Weprovide the probability density functions of the occupation time of thehigh volatility regime via Laplace transforms. Using these functions wederive the analytic valuation formulae for options with correlated creditrisk and business cycle. We also illustrate the important properties ofoptions with numerical graphs.