ADI numerical method for modeling stock insurance based on spread options

This paper introduces a spread option model based on two underlying assets, namely Bandar Abbas oil refining (Shebandar) and Tehran oil refining (Shatran) companies. Regarding the available data of the former, we propose the jump-diffusion model for its dynamics. After constructing our portfolio, we first consider a partial integro-differential equation (PIDE) for the spread option model. Then, by making some alterations to the literature of the problem and parameters of the model, it is demonstrated that the assumed option can be considered as insurance, hedging the stocks mentioned above. The PIDE is solved by the well-known ADI numerical method. Finally, we utilize real data extracted from the Tehran Stock Exchange, and a reliable result is obtained by using MATLAB software.

کلیدواژه ها:

Spread option pricing ، Jump-diffusion model ، Alternating Direction Implicit ، Insurance ، Numerical method