id	author	title	date	pages	extension	mime	words	sentence	flesch	summary	cache	txt
fsr-3262	Cline, Brandon N.; Brooks, Robert	Spread options and risk management: Lognormal versus normal distribution approach	2015	21	.pdf	application/pdf	9123	428	56	Normal spread option pricing model (NSOPM) If we assume that the spread follows ABM with geometric drift, then dS � �SSdt �SdzS , (14) where �� � �S � � denotes the mean growth rate of the spread, �S � � denotes the SD of the spread (same units of measure as S), and �� � dzS � � denotes the standard Wiener process associated with the spread. If we assume indexes follow GBM with geometric drift, then dIj � ��̂j � �j�Ijdt � �̂jIjdzj; j � 1,2, (3) where �� � �̂j � � denotes the mean growth rate of index j, �� � �j � denotes the carry costs related to index j, �j � � denotes the SD of index j, and �� � dzj � � denotes the standard Wiener process associated with index j. The value of spread option today can be expressed generically as, SO0 � PV�E0�SOT� , (4) where the expectation is taken under the equivalent martingale measure (standard finance assumptions are made; see Appendix A).	cache/fsr-3262.pdf	txt/fsr-3262.txt