Spread Options: From Margrabe to Kirk

6 Pages Posted: 17 Aug 2020

Date Written: August 5, 2020

Abstract

Kirk provided an approximate closed-form solution for the price of a spread option. This paper is written in response to ref. published in Applied Mathematics Letters in which the author believes no explicit derivation of Kirk’s approximation from Margrabe’s exchange option formula is available or has ever been published. Here we provide such an explicit derivation.

Keywords: Spread Option, Kirk, Margrabe, Black-Scholes, Energy Market

JEL Classification: C02, C30, C51, C60, G11, G12

Suggested Citation

Etesami, Seyyed Ruhollah, Spread Options: From Margrabe to Kirk (August 5, 2020). Available at SSRN: https://ssrn.com/abstract=3665654 or http://dx.doi.org/10.2139/ssrn.3665654

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