Hanna Zdanowicz: Pricing of energy spread options by Fourier transform

Hanna Zdanowicz (Univeritetet i Oslo) holder et seminar med tittelen: Pricing of energy spread options by Fourier transform

The Margrabe formula gives the price and hedge of a call option on the difference between two assets modelled by a bivariate geometric Brownian motion. In this talk we will look at a generalization of this formula into the class of Lévy semi stationary processes. These will model the non-Gaussian behaviour of prices, commonly used in energy markets. We shall consider multifactor LSS processes of exponential type to accommodate mean-reversion at different scales as well as non-stationarity. Bivariate Lévy processes will model the joint behaviour, as well as common factors. Based on a measure change using Esscher transform, we reduce the bivariate pricing problem to a univariate option pricing problem and express the price in terms of the Fourier transform.
Published Jan. 12, 2014 4:09 PM - Last modified Jan. 14, 2014 9:53 AM