January 4th, 2008, 2:51 pm
hi,i'm interesting about spread option between electricity and natural gas prices.I have same questions1) Given the payoff max(S2-S1-k,0): how are quantities S1 and S2 choosen?2) Any suggestions about how to find same prices on bloomberg or on the web.3) Which are models most used to price this kind of spread options? (this prices show mean reversion and spikes (jumps + jump-reversion), in time series often are used jump diffusion model)4) Should historical sample correlation coefficient be adjusted, in same way, to be used for (risk neutral) pricing?thanks very much