barrierSpreadOption: Barrier Spread Option Pricing

In RTL: Risk Tool Library - Trading, Risk, Analytics for Commodities

Barrier Spread Option Pricing

Description

This model applies Kirk's (1995) closed-form approximation for pricing spread options, incorporating barrier adjustments for continuous and terminal monitoring.

Usage

barrierSpreadOption(
  F1 = -12,
  F2 = -3,
  X = 5.5,
  B = 9,
  sigma1 = 0.6,
  sigma2 = 0.6,
  rho = 0.3,
  T2M = 1/12,
  r = 0.045,
  type = "call",
  barrier_type = "uo",
  monitoring = "continuous"
)

Arguments

F1	numeric, forward price of the first asset (e.g., pipeline origination price as a futures)
F2	numeric, forward price of the second asset (e.g., pipeline destination price as a futures)
X	numeric, strike price of the spread option
B	numeric, barrier level for the spread (F2 - F1)
sigma1	numeric, volatility of the first asset (annualized)
sigma2	numeric, volatility of the second asset (annualized)
rho	numeric, correlation coefficient between the two assets
T2M	numeric, time to maturity in years
r	numeric, risk-free interest rate (annualized)
type	character, "call" or "put"
barrier_type	character, "do" or "uo" (down-and-out, up-and-out)
monitoring	character, "continuous" or "terminal"

Value

A list containing option price and Greeks.

RTL documentation built on April 4, 2025, 2:20 a.m.