Online Spread Option Calculator
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Description
A spread option gives the owner the right to buy/sell a spread between two underlying assets for a fixed value -the strike-. The spread call option has a payoff of max[(S1-S2)-K,0] and the spread put option has a payoff of max[K-(S1-S2),0]. There are no closed form formulas for the value of a spread option. A well known approximation is Magrabe's method, which has limited precision for certain cases.
This routine implements a high precision numerical approximation to the value of the spread option. The routine has a precision of 8 digit.
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| The spread option is a vanilla option with a spread as underlying value. A spread call option gives the owner the right to buy the spread S1-S2 for a fixed value K and thus has a payoff of max(S1-S2-K,0). |
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| Payoff at expiration of a spread call option. The owner has the right to buy ( S1-S2) for a fixed value. |
Relevant Equations
The payoff equation for this option is given by:
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