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spread option

Posted: December 6th, 2012, 4:10 pm
by rweinsh
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)?

spread option

Posted: December 6th, 2012, 4:49 pm
by acastaldo
you know rhouse call price to infer implied volatilities sigma_1 and sigma_2then use margrabe formula with rho, sigma1, sigma2

spread option

Posted: December 6th, 2012, 4:56 pm
by rweinsh
tx but what is margrabe formula,please?

spread option

Posted: December 7th, 2012, 1:05 pm
by cemil
QuoteOriginally posted by: rweinshtx but what is margrabe formula,please?google is your friend!

spread option

Posted: December 7th, 2012, 2:24 pm
by PvalAnal85
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