Pricing European Spread Call Options Under the Constant Elasticity of Variance with Time-Dependent Volatility Model

This paper focuses on the pricing of European spread call options. In particular, we consider univariate modelling by proposing constant elasticity of variance with time dependent volatility model and derive new analytic asymptotic approximation formula. In order to measure the accuracy of the deriv...

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Bibliographic Details
Main Author: Oud, Mohammed A. Aba
Format: Conference Proceeding
Language:English
Subjects:
Analytical models
Elasticity
Europe
Mathematical model
Oil
Oils
Optimization
Pricing
Spread options
Online Access:Request full text
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Summary:This paper focuses on the pricing of European spread call options. In particular, we consider univariate modelling by proposing constant elasticity of variance with time dependent volatility model and derive new analytic asymptotic approximation formula. In order to measure the accuracy of the derived formula, numerical examples are provided to compare the performance of the analytic asymptotic approximation formula with the exact solution. Results from the numerical examples demonstrate that the new analytic approximation provides an excellent approximation to the exact solution.
ISSN:2573-5276
DOI:10.1109/ICMSAO.2019.8880328