OPT_SPREAD_APPROX

OPT_SPREAD_APPROX theoretical price of a European option on the spread between two futures contracts

Synopsis

OPT_SPREAD_APPROX(call_put_flag,fut_price1,fut_price2,strike,time,rate,volatility1,volatility2,rho)

Arguments

call_put_flag: 'c' for a call and 'p' for a put

fut_price1: price of the first futures contract

fut_price2: price of the second futures contract

strike: strike price

time: time to maturity in years

rate: annualized risk-free interest rate

volatility1: annualized volatility in price of the first underlying futures contract

volatility2: annualized volatility in price of the second underlying futures contract

rho: correlation between the two futures contracts