Abstract

Spread options are derivative securities, which are written on the difference between the values of two underlying market variables. They are very important tools to hedge the correlation risk. American style spread options allow the holder to exercise the option at any time up to and including maturity. Although they are widely used to hedge and speculate in financial market, the valuation of the American spread option is very challenging. Because even under the classic assumptions that the underlying assets follow the log-normal distribution, the resulting spread doesn't have a distribution with a simple closed formula. In this dissertation, we investigate the American spread option pricing problem. Several approaches for the geometric Brownian motion model and the stochastic volatility model are developed. We also implement the above models and the numerical results are compared among different approaches.

Degree

PhD

College and Department

Physical and Mathematical Sciences; Mathematics

Rights

http://lib.byu.edu/about/copyright/

Date Submitted

2013-05-31

Document Type

Dissertation

Handle

http://hdl.lib.byu.edu/1877/etd6196

Keywords

American Spread Option, Option Pricing, PDE, Finite Difference Method, Monte Carlo, Simulation, Dual Method, FFT, Stochastic Volatility

Included in

Mathematics Commons

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