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rweinsh
Topic Author
Posts: 35
Joined: May 12th, 2011, 3:53 pm

spread option

December 6th, 2012, 4:10 pm

Hi!I have asset 1 option call price,asset 2 option call price and correlation between asset 1 and asset 2How can I get call option on spread (asset 1 - asset 2)?
 
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acastaldo
Posts: 1416
Joined: October 11th, 2002, 11:24 pm

spread option

December 6th, 2012, 4:49 pm

you know rhouse call price to infer implied volatilities sigma_1 and sigma_2then use margrabe formula with rho, sigma1, sigma2
 
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rweinsh
Topic Author
Posts: 35
Joined: May 12th, 2011, 3:53 pm

spread option

December 6th, 2012, 4:56 pm

tx but what is margrabe formula,please?
 
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cemil
Posts: 221
Joined: September 16th, 2005, 7:44 am

spread option

December 7th, 2012, 1:05 pm

QuoteOriginally posted by: rweinshtx but what is margrabe formula,please?google is your friend!
 
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PvalAnal85
Posts: 37
Joined: May 26th, 2009, 6:23 pm

spread option

December 7th, 2012, 2:24 pm

CMS Spread Options can be calculated in closed form using normal joint density/Copula functions, as per this paper:http://www.mathfinance2.com/MF_website/ ... ntRef=151I hope this helps
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