A note on closed-form spread option valuation under log-normal models

Nuerxiati Abudurexiti, Kai He, Dongdong Hu and Hasanjan Sayit

Quantitative Finance, 2025, vol. 25, issue 1, 143-160

Abstract: In the papers Carmona and Durrleman [Pricing and hedging spread options in a log-normal model. Technical report: Department of Operations Research and Financial Engineering, Princeton, NJ, Princeton University, 2003] and Bjerksund and Stensland [Closed form spread option valuation. Quant. Finance, 2014, 14(10), 1785–1794], closed-form approximations for spread call option prices were studied under the log-normal models. In this paper, we give an alternative closed-form formula for the price of spread call options under the log-normal models also. Our formula can be seen as a generalization of the closed-form formula presented in Bjerksund and Stensland [Closed form spread option valuation. Quant. Finance, 2014, 14(10), 1785–1794] as their formula can be obtained by selecting special parameter values for our formula. Numerical tests show that our formula performs better for a certain range of model parameters than the closed-form formula presented in Bjerksund and Stensland [Closed form spread option valuation. Quant. Finance, 2014, 14(10), 1785–1794].

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/14697688.2024.2414761 (text/html)
Access to full text is restricted to subscribers.

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:taf:quantf:v:25:y:2025:i:1:p:143-160

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RQUF20

DOI: 10.1080/14697688.2024.2414761

Access Statistics for this article

Quantitative Finance is currently edited by Michael Dempster and Jim Gatheral

More articles in Quantitative Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().