Spread options are multi-asset options whose payoffs depend on the difference of two underlying financial variables. In most cases, analytically closed form solutions for pricing such payoffs are not available, and the application of numerical pricing methods turns out to be non-trivial. We...

This paper formulates and analyzes a discretization scheme for a jump-diffusion process with general state-dependent drift, volatility, jump intensity, and jump size. The jump times of the process are constructed as time-changed Poisson arrival times, and the Euler method is used to generate the...

Market option prices in last 20 years confirmed deviations from the Black and Scholes (BS) models assumptions, especially on the BS implied volatility. Implied binomial trees (IBT) models capture the variations of the implied volatility known as "volatility smile". They provide a discrete...

Improving the resilience of the economy in the face of uncertain climate change damages involves irreversible investments to scale up new technologies that are less vulnerable to the effects of climate change. The benefit of having such options includes the avoided welfare cost of diverting...

Pricing different types of derivative contracts to minimize risk is a significant step for business sustainability. Whaley (2006) refers that for the European Puts and Calls, known as vanilla options, there is a closed form solution that delivers the 'fair' price of the option with respect to...