The purpose of the paper is to present a new pricing method for clean spread options, and to illustrate its main features on a set of numerical examples produced by a dedicated computer code. The novelty of the approach is embedded in the use of a structural model as opposed to reduced-form models which fail to capture properly the fundamental dependencies between the economic factors entering the production process.
All Science Journal Classification (ASJC) codes
- Economics, Econometrics and Finance(all)
- Electricity markets
- Emission markets
- Real asset valuation
- Spread options