Spread Option Pricing Based on Black-Scholes Model and Monte Carlo Simulation Under the Situation of Russia-Ukraine

Abstract

In 2022, under the current situation of Russia and Ukraine as well as the outbreak of epidemics, the price of crude oil and gasoline are fluctuating dramatically. On this basis, investors face great uncertainty in the future markets. To find out a way to help investors benefit from the war, we used the current information to estimate future trends. By applying the Monte Carlo model to generate random numbers, Black-Scholes model is applied to price the future option based on the data from Yahoo Finance. In addition, the benchmark simulation is employed to obtain a more accurate option value. Spread option has both strengths and weaknesses. Specifically, it can help investors to earn their profits and minimize the risks, while will fluctuate the price of the option when the two assets are highly correlated thus reducing the value of the option. According to sensitive analysis, the positive relationship is clarified between the option pricing as well as the volatility and time period. These results shed light on the best strategy for the clients to make more profits. It is concluded that customers should hold their stocks for the long term and sell them for a higher profit when the war is over.