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

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

Interest rates work with shifted log normal. Would commodity prices work
with that?

Do you have any reference where i can see what adjustments to make for
shifting the CM prices.

Ashish

On Fri, 2 Dec 2022 at 18:26, Philippe Hatstadt <
phi...@ex...> wrote:

> How about shifted log normal?
>
> Regards
>
> Philippe Hatstadt
> +1-203-252-0408
>
>
> On Dec 2, 2022, at 7:54 AM, Ashish Bansal <ash...@gm...> wrote:
>
> 
> 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
>>> _______________________________________________
>>> QuantLib-users mailing list
>>> Qua...@li...
>>> https://lists.sourceforge.net/lists/listinfo/quantlib-users
>>>
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