Weak vs. Strong Correlations: Bid-Ask Spreads for Weather-Contingent Options

Rene' Carmona and Dario Villani

Papers from arXiv.org

Abstract: We price weather-contingent options by use of Monte Carlo simulations. After calibrating the models to fit quoted prices, we analyze bid-ask spreads in terms of correlations across markets. Results are presented for a double-trigger Weather vs. Natural Gas call option.

Date: 2003-05
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