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fatboyslim1983
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Posts: 3
Joined: February 7th, 2007, 3:02 am

ratio option

November 23rd, 2010, 8:53 pm

Assume we know both vol skews of commodity A and commodity B, future prices and constant rate, is there a practical method to imply the vol skew of the price ratio of commodity A / B?
Last edited by fatboyslim1983 on November 22nd, 2010, 11:00 pm, edited 1 time in total.
 
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daveangel
Posts: 17031
Joined: October 20th, 2003, 4:05 pm

ratio option

November 23rd, 2010, 9:05 pm

u need the correlation between the two
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tagoma
Posts: 18849
Joined: February 21st, 2010, 12:58 pm

ratio option

November 30th, 2010, 9:19 pm

hello fatboyslim1983i wonder what you could infer from the vol skew of a price ratio ?(commodities topics are so rare on wilmott :-( ) which commodities do you work with ?édouard
 
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spv205
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Joined: July 14th, 2002, 3:00 am

ratio option

November 30th, 2010, 10:55 pm

you might look at what is done in fx, where its a more natural question ie the ratio of two fx rates (Eg EURJPY=EURUSD/USDJPY ) is another fx rate.there is a paper by avallaneda on basket skews which can certainly be adapted to ratios.
 
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tagoma
Posts: 18849
Joined: February 21st, 2010, 12:58 pm

ratio option

November 30th, 2010, 11:12 pm