We provide new closed-form approximations for the pricing of spread options in three specific instances of exponential Lévy markets, ie, when log-returns are modeled as Brownian motions (Black-Scholes model), variance gamma processes (VG model), or normal inverse Gaussian processes (NIG model). For the specific case of exchange options (spread options with zero strike), we generalize the well-known Margrabe formula (1978) that is valid in a Black-Scholes model to the VG model under a homogeneity assumption.

Original languageEnglish
Pages (from-to)732-746
Number of pages15
JournalApplied Stochastic Models in Business and Industry
Issue number3
Publication statusPublished - May 2019

    Research areas

  • conditional expectation, Gaussian quadrature, Lévy markets, Margrabe's formula, stochastic clock

ID: 43967872