Valuing spread options and margrabe options using Monte Carlo simulation

Abstract

Spread options and Margrabe options are ubiquitous in the financial markets, whether they be equity, fixed income, foreign exchange, commodities, or energy markets. And they are options that derive its value from the difference between the prices of two or more assets. In the thesis, we explain Itô`s lemma and Black Scholes equation for introducing European options, Spread options and Margrabe options. Furthermore we calculate Spread options and Margrabe options using Monte Carlo Simulation which provides a simple and °exible method and can deal easily with multiple random factors.