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Extreme Spread Options

The value of a European extreme spread option can be found with the Bermin(1996) formula :



If the option is a call then ? = 1 and M0 the observed maximum.

If the option is a call then ? = -1 and M0 the observed minimum.


w = Price of European option

F1 = Price on futures contract one

F2 = Price on futures contract two

X = Strike price

T = Time to maturity

r = risk free rate

= Volatility of future one

= Volatility of future two

= Correlation between the two contracts

N = The cumulative normal distribution function


See Also

oX_ExtremeSpread( ) Functions

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