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Pricing Exchange Options under Stochastic Correlation

Enrique Villamor and Pablo Olivares
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Enrique Villamor: FIU
Pablo Olivares: Ryerson University

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Abstract: In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is proposed. Numerical results are illustrated for exchanges between WTI and Brent type oil prices.

Date: 2020-01
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Handle: RePEc:arx:papers:2001.03967