Exchange options and spread options with stochastically correlated underlyings

Xingchun Wang ()

Applied Economics Letters, 2022, vol. 29, issue 12, 1060-1068

Abstract: This paper investigates the valuation of exchange options and spread options with stochastically correlated underlying assets. Specially, the correlation is determined by market betas of underlying assets and depends on the level of the variance of the market index. Based on the closed form of the moment generating function of the log-return vector, we obtain pricing formulae for exchange options and spread options. Finally, numerical analysis illustrates the impacts of the market risk factor on option prices.

Date: 2022
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DOI: 10.1080/13504851.2021.1907281

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