The Valuation of Clean Spread Options: Linking Electricity, Emissions and Fuels
arXiv:1205.2302 · doi:10.1080/14697688.2012.750733
Abstract
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 structural models as opposed to reduced-form models which fail to capture properly the fundamental dependencies between the economic factors entering the production process.