This model applies Kirk's (1995) closed-form approximation for pricing spread options, incorporating barrier adjustments for continuous and terminal monitoring.
barrierSpreadOption(
F1 = -12,
F2 = -3,
X = 5.5,
B = 9,
sigma1 = 0.6,
sigma2 = 0.6,
rho = 0.3,
T2M = 1/12,
r = 0.045,
type = "call",
barrier_type = "uo",
monitoring = "continuous"
)A list containing option price and Greeks.
numeric, forward price of the first asset (e.g., pipeline origination price as a futures)
numeric, forward price of the second asset (e.g., pipeline destination price as a futures)
numeric, strike price of the spread option
numeric, barrier level for the spread (F2 - F1)
numeric, volatility of the first asset (annualized)
numeric, volatility of the second asset (annualized)
numeric, correlation coefficient between the two assets
numeric, time to maturity in years
numeric, risk-free interest rate (annualized)
character, "call" or "put"
character, "do" or "uo" (down-and-out, up-and-out)
character, "continuous" or "terminal"