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On the Use of the Moment-Matching Technique for Pricing and Hedging Multi-Asset Spread Options

On the Use of the Moment-Matching Technique for Pricing and Hedging Multi-Asset Spread Options. Tommaso Pellegrino , joint work with Piergiacomo Sabino E.ON Global Commodities – (CRM) Risk Methods Team October 10 th , 2013

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On the Use of the Moment-Matching Technique for Pricing and Hedging Multi-Asset Spread Options

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  1. On the Use of the Moment-Matching Technique for Pricing and Hedging Multi-Asset Spread Options Tommaso Pellegrino, joint work with Piergiacomo Sabino E.ON Global Commodities – (CRM) Risk Methods Team October 10th , 2013 All parameters and values here do not reflect any E.ON view and their calibration is not the focus of this paper.

  2. Introduction and Motivation

  3. Assumptions and Notations

  4. The Log-Normal Proxy Fuel Leg

  5. The Moment-Matching Technique (1)

  6. The Moment-Matching Technique (2)

  7. The Equivalent Fuel Leg Volatility

  8. The Equivalent Correlation Parameter (1)

  9. The Equivalent Correlation Parameter (2)

  10. A First Application: Kirk Formula with Moment Matching

  11. Numerical Example: Application to a Strip of Monthly Clean Spark Spread Options

  12. Hedging Parameters Calculation

  13. Option Value and Deltas All parameters and values here do not reflect any E.ON view and their calibration is not the focus of this paper.

  14. Gammas and Cross-Gammas All parameters and values here do not reflect any E.ON view and their calibration is not the focus of this paper.

  15. Conclusions and Future Studies

  16. Bibliography

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