Closed Form Valuation of Three-Asset Spread Options With a view towards Clean Dark Spreads
(2015) 2015(3).- Abstract
- We perform a slight generalization of the Bjerksund and Stensland (2011) spread option valuation formula to cover three-asset spread options. We investigate the pricing performance of the model against the corresponding version of the Kirk formula and the true price calculated with Monte Carlo methods. The numerical setting of the evaluation is designed to mimic a real market situation in the German OTC market for clean dark spread options.The results show that both models give similar and accurate price estimates (compared to the true option price). Comparing the performance between the models we conclude that the three-asset Bjerksund-Stensland formula performs marginally better compared to the three-asset Kirk formula (counting the... (More)
- We perform a slight generalization of the Bjerksund and Stensland (2011) spread option valuation formula to cover three-asset spread options. We investigate the pricing performance of the model against the corresponding version of the Kirk formula and the true price calculated with Monte Carlo methods. The numerical setting of the evaluation is designed to mimic a real market situation in the German OTC market for clean dark spread options.The results show that both models give similar and accurate price estimates (compared to the true option price). Comparing the performance between the models we conclude that the three-asset Bjerksund-Stensland formula performs marginally better compared to the three-asset Kirk formula (counting the number of test cases with the lowest absolute pricing error against the true option price). (Less)
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/7409660
- author
- Green, Rikard LU
- organization
- publishing date
- 2015
- type
- Working paper/Preprint
- publication status
- unpublished
- subject
- keywords
- Spread options, Financial derivatives, Energy markets, Clean dark spreads
- volume
- 2015
- issue
- 3
- pages
- 17 pages
- publisher
- Knut Wicksell Working Paper
- language
- English
- LU publication?
- yes
- id
- 34f11257-45c0-4bb6-9066-1f5d3c2e7190 (old id 7409660)
- date added to LUP
- 2016-04-04 10:22:26
- date last changed
- 2018-11-21 20:58:22
@misc{34f11257-45c0-4bb6-9066-1f5d3c2e7190, abstract = {{We perform a slight generalization of the Bjerksund and Stensland (2011) spread option valuation formula to cover three-asset spread options. We investigate the pricing performance of the model against the corresponding version of the Kirk formula and the true price calculated with Monte Carlo methods. The numerical setting of the evaluation is designed to mimic a real market situation in the German OTC market for clean dark spread options.The results show that both models give similar and accurate price estimates (compared to the true option price). Comparing the performance between the models we conclude that the three-asset Bjerksund-Stensland formula performs marginally better compared to the three-asset Kirk formula (counting the number of test cases with the lowest absolute pricing error against the true option price).}}, author = {{Green, Rikard}}, keywords = {{Spread options; Financial derivatives; Energy markets; Clean dark spreads}}, language = {{eng}}, note = {{Working Paper}}, number = {{3}}, publisher = {{Knut Wicksell Working Paper}}, title = {{Closed Form Valuation of Three-Asset Spread Options With a view towards Clean Dark Spreads}}, volume = {{2015}}, year = {{2015}}, }