Re: [Quantlib-users] Query on Calendar spread options

[Jonathan S. <sw...@gm...>]

Generally you wouldn't use the Black-Scholes model to price options on
calendar spreads because the assumption of geometric Brownian motion is not
valid.

As a first step, you might consider using an arithmetic Brownian motion,
which can go negative. Iain Clark's excellent book briefly mentions this in
a footnote on page 13.

https://books.google.co.kr/books?id=7vua-0-2sgMC&pg=PT31&source=gbs_toc_r&cad=3#v=onepage&q&f=false

There are some Bachelier functions in QuantLib that don't appear to require
a positive strike but I haven't used them before, so I might be wrong.
Seems like a good place to start though.

https://github.com/lballabio/QuantLib/blob/master/ql/pricingengines/blackformula.cpp#L704

For more advanced modeling of this product, you'll probably have to
implement something bespoke.


On Fri, Dec 2, 2022 at 6:55 PM Ashish Bansal <ash...@gm...>
wrote:

> Hi,
>
> I use the Blackscholes engine to evaluate the commodity options. However,
> it supports only positive strikes and throws error for a negative strike.
>
> Now, I wish to evaluate the spread options traded on CBOT:
> Consecutive Corn CSO Quotes - CME Group
> <https://www.cmegroup.com/markets/agriculture/grains/corn.quotes.options.html#optionProductId=2730>
>
> How can I evaluate these using Quantlib? Any suggestions on the correct
> engine to use which supports the negative strike?
>
> Thanks
> Ashish Bansal
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