Spread Options: From Margrabe to Kirk
6 Pages Posted: 17 Aug 2020
Date Written: August 5, 2020
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: Suggested Citation