Utilizad este identificador para citar o enlazar este documento: http://hdl.handle.net/2072/214131

On the goodness of fit of Kirk's formula for spread option prices
Jorge A. León; Elisa Alòs
Universitat Pompeu Fabra. Departament d'Economia i Empresa
In this paper we investigate the goodness of fit of the Kirk's approximation formula for spread option prices in the correlated lognormal framework. Towards this end, we use the Malliavin calculus techniques to find an expression for the short-time implied volatility skew of options with random strikes. In particular, we obtain that this skew is very pronounced in the case of spread options with extremely high correlations, which cannot be reproduced by a constant volatility approximation as in the Kirk's formula. This fact agrees with the empirical evidence. Numerical examples are given.
10-07-2013
Spread options, Kirk's formula, Malliavin calculus, Skorohod integral.
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