Closed Form Pricing for Commodity Spread Options with High Correlation

2014 ◽  
Author(s):  
Wen Cheng
Keyword(s):  
Closed Form ◽  
Spread Options

Closed Form Approximations for Spread Options

2011 ◽  
Vol 18 (5) ◽  
pp. 447-472 ◽  
Author(s):  
Aanand Venkatramanan ◽  
Carol Alexander
Keyword(s):  
Closed Form ◽  
Spread Options

scholarly journals Correlating Lévy processes with self-decomposability: applications to energy markets

2021 ◽  
Author(s):  
Matteo Gardini ◽  
Piergiacomo Sabino ◽  
Emanuela Sasso
Keyword(s):  
Monte Carlo ◽  
Closed Form ◽  
Lévy Processes ◽  
Systematic Risk ◽  
Levy Processes ◽  
Energy Markets ◽  
Characteristic Functions ◽  
Stochastic Delay ◽  
Spread Options

AbstractBased on the concept of self-decomposability, we extend some recent multidimensional Lévy models built using multivariate subordination. Our aim is to construct multivariate Lévy processes that can model the propagation of the systematic risk in dependent markets with some stochastic delay instead of affecting all the markets at the same time. To this end, we extend some known approaches keeping their mathematical tractability, study the properties of the new processes, derive closed-form expressions for their characteristic functions and detail how Monte Carlo schemes can be implemented. We illustrate the applicability of our approach in the context of gas, power and emission markets focusing on the calibration and on the pricing of spread options written on different underlying commodities.

scholarly journals ENERGY SPOT PRICE MODELS AND SPREAD OPTIONS PRICING

2007 ◽  
Vol 10 (07) ◽  
pp. 1111-1135 ◽  
Author(s):  
SAMUEL HIKSPOORS ◽  
SEBASTIAN JAIMUNGAL
Keyword(s):  
Closed Form ◽  
Calibration Procedure ◽  
Spot Price ◽  
Elementary Functions ◽  
Modeling Framework ◽  
Market Prices ◽  
Spot Prices ◽  
Spread Options ◽  
Forward Price ◽  
Forward Prices

In this article, we construct forward price curves and value a class of two asset exchange options for energy commodities. We model the spot prices using an affine two-factor mean-reverting process with and without jumps. Within this modeling framework, we obtain closed form results for the forward prices in terms of elementary functions. Through measure changes induced by the forward price process, we further obtain closed form pricing equations for spread options on the forward prices. For completeness, we address both an Actuarial and a risk-neutral approach to the valuation problem. Finally, we provide a calibration procedure and calibrate our model to the NYMEX Light Sweet Crude Oil spot and futures data, allowing us to extract the implied market prices of risk for this commodity.

Closed‐form approximations for spread options in Lévy markets

2018 ◽  
Vol 35 (3) ◽  
pp. 732-746
Author(s):  
Jente Van Belle ◽  
Steven Vanduffel ◽  
Jing Yao
Keyword(s):  
Closed Form ◽  
Spread Options

Closed-Form Approximations for Spread Options in LLvy Markets

2018 ◽  
Author(s):  
Jente van Belle ◽  
Steven Vanduffel ◽  
Jing Yao
Keyword(s):  
Closed Form ◽  
Spread Options

ON SPREAD OPTION PRICING USING TWO-DIMENSIONAL FOURIER TRANSFORM

2019 ◽  
Vol 22 (05) ◽  
pp. 1950023
Author(s):  
MESIAS ALFEUS ◽  
ERIK SCHLÖGL
Keyword(s):  
Fourier Transform ◽  
Option Pricing ◽  
Closed Form ◽  
Stochastic Volatility Model ◽  
Approximation Formula ◽  
Two Dimensional ◽  
Spread Options ◽  
Variance Gamma Process ◽  
Volatility Model ◽  
Spread Option

Spread options are multi-asset options with payoffs dependent on the difference of two underlying financial variables. In most cases, analytically closed form solutions for pricing such payoffs are not available, and the application of numerical pricing methods turns out to be nontrivial. We consider several such nontrivial cases and explore the performance of the highly efficient numerical technique of Hurd & Zhou[(2010) A Fourier transform method for spread option pricing, SIAM J. Financial Math. 1(1), 142–157], comparing this with Monte Carlo simulation and the lower bound approximation formula of Caldana & Fusai[(2013) A general closed-form spread option pricing formula, Journal of Banking & Finance 37, 4893–4906]. We show that the former is in essence an application of the two-dimensional Parseval’s Identity. As application examples, we price spread options in a model where asset prices are driven by a multivariate normal inverse Gaussian (NIG) process, in a three-factor stochastic volatility model, as well as in examples of models driven by other popular multivariate Lévy processes such as the variance Gamma process, and discuss the price sensitivity with respect to volatility. We also consider examples in the fixed-income market, specifically, on cross-currency interest rate spreads and on LIBOR/OIS spreads.

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