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Matched Asymptotic Expansions for Valuing Spread Options

By Razan Charara

Abstract

Spread Options are crucial in the energy, currency and fixed income, and com- modity markets. The problem with spread options is that there are no closed- form formulae to price or hedge them. In this paper, we use matched asymptotic expansions in order to price spread options. We use both one-factor and two- factor models. In the one-factor models we assume the spread follows one of the following processes: Geometric Brownian Motion, Ornstein-Uhlenbeck and Arithmetic Brownian Motion. In the two-factor models, we assume the assets follow one of these processes

Topics: Mathematics education
Year: 2008
OAI identifier: oai:generic.eprints.org:710/core69

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Citations

  1. (2005). Matched Assymptotic Expansions in
  2. (2003). Pricing and Hedging Spread Options.”

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