An efficient unified approach for spread option pricing in a copula market model

Edoardo Berton () and Lorenzo Mercuri ()
Additional contact information
Edoardo Berton: Universitá Cattolica del Sacro Cuore
Lorenzo Mercuri: Universitá degli Studi di Milano

Annals of Operations Research, 2024, vol. 336, issue 1, No 10, 307-329

Abstract: Abstract In this study, we propose a new formula for spread option pricing with the dependence of two assets described by a copula function. The proposed method’s advantage lies in its requirement of solely computing one-dimensional integrals. Any univariate stock price process, admitting an affine characteristic function, can be used in our formula to get an efficient numerical pricing procedure for a spread option. In the numerical analysis we present a comparison with the Monte Carlo simulation method to assess the performance of our approach, assuming that the univariate stock price follows three widely applied models: variance gamma, Heston’s stochastic volatility and affine Heston–Nandi GARCH(1,1) models.

Keywords: Copula function; Affine process; Spread options (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10479-023-05549-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:annopr:v:336:y:2024:i:1:d:10.1007_s10479-023-05549-2

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-023-05549-2

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().