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Pricing Exchange Options under Stochastic Correlation

Author

Listed:
  • Enrique Villamor

    (FIU)

  • Pablo Olivares

    (Ryerson University)

Abstract

In this paper we study the pricing of exchange options when underlying assets have stochastic volatility and stochastic correlation. An approximation using a closed-form approximation based on a Taylor expansion of the conditional price is proposed. Numerical results are illustrated for exchanges between WTI and Brent type oil prices.

Suggested Citation

  • Enrique Villamor & Pablo Olivares, 2020. "Pricing Exchange Options under Stochastic Correlation," Papers 2001.03967, arXiv.org.
    • Handle: RePEc:arx:papers:2001.03967
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    References listed on IDEAS

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