SpreadBjerksund2014: Spread option pricing method by Bjerksund & Stensland (2014)

In FER: Financial Engineering in R

Description

The payout of the spread option is max(S1_T - S2_T - K, 0) where S1_T and S2_T are the prices at expiry T of assets 1 and 2 respectively and K is the strike price.

Usage

SpreadBjerksund2014(
  strike = 0,
  spot1,
  spot2,
  texp = 1,
  sigma1,
  sigma2,
  corr,
  intr = 0,
  divr1 = 0,
  divr2 = 0,
  cp = 1L,
  forward1 = spot1 * exp(-divr1 * texp)/df,
  forward2 = spot2 * exp(-divr2 * texp)/df,
  df = exp(-intr * texp)
)

Arguments

strike	(vector of) strike price
spot1	(vector of) spot price of asset 1
spot2	(vector of) spot price of asset 2
texp	(vector of) time to expiry
sigma1	(vector of) volatility of asset 1
sigma2	(vector of) volatility of asset 2
corr	correlation
intr	interest rate
divr1	dividend rate of asset 1
divr2	dividend rate of asset 2
cp	call/put sign. 1 for call, -1 for put.
forward1	forward price of asset 1. If given, overrides spot1
forward2	forward price of asset 2. If given, overrides spot2
df	discount factor. If given, df overrides intr

Value

option price

References

Bjerksund, P., & Stensland, G. (2014). Closed form spread option valuation. Quantitative Finance, 14(10), 1785–1794. doi: 10.1080/14697688.2011.617775

Examples

FER::SpreadBjerksund2014((-2:2)*10, 100, 120, 1.3, 0.2, 0.3, -0.5)

FER documentation built on March 5, 2021, 5:06 p.m.