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

[Ashish B. <ash...@gm...>]

Thanks a lot Philippe and Jonathan for the help. Really appreciate it.

On Fri, 2 Dec 2022 at 18:12, Jonathan Sweemer <sw...@gm...> wrote:

> 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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>