Spread Options on Commodity Prices

30 Pages Posted: 7 Jul 2022

See all articles by Carme Frau

Carme Frau

Universitat de les Illes Balears

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa; Bayes Business School - City, University of London

Ioannis Kyriakou

Bayes Business School (formerly Cass), City, University of London

Date Written: June 24, 2022

Abstract

In this work we perform a pricing exercise of different types of spread options; we particularly focus on European calendar and crack spread options. We present the expressions followed by the joint characteristic functions of the underlying log-prices for a panel of bivariate processes. The expressions we obtain for calendar spread options are new in the literature. We follow different methodologies for option valuation, and compare accuracy and processing times obtained using each one.

Keywords: Commodities, crack spread option, calendar spread option, joint characteristic function, Fourier inversion, Fourier transform, analytical solution

JEL Classification: C51, C63, G13

Suggested Citation

Frau, Carme and Fusai, Gianluca and Kyriakou, Ioannis, Spread Options on Commodity Prices (June 24, 2022). Available at SSRN: https://ssrn.com/abstract=4145510 or http://dx.doi.org/10.2139/ssrn.4145510

Carme Frau (Contact Author)

Universitat de les Illes Balears ( email )

Business Economics Department
Jovellanos Building, Road to Valldemossa km. 7,5
Palma de Mallorca, 07122
Spain

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa ( email )

Via Perrone, 18
Novara, 28100
Italy

HOME PAGE: http://https://upobook.uniupo.it/gianluca.fusai

Bayes Business School - City, University of London ( email )

106 Bunhill Row
London, EC2Y 8HB
Great Britain

HOME PAGE: http:// www.cass.city.ac.uk/experts/G.Fusai

Ioannis Kyriakou

Bayes Business School (formerly Cass), City, University of London ( email )

Faculty of Actuarial Science & Insurance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0)20 7040 8738 (Phone)
+44 (0)20 7040 8881 (Fax)

HOME PAGE: http://www.bayes.city.ac.uk/experts/I.Kyriakou

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