Resolution - the authority on derivative pricing Resolution - specialising in providing pricing and risk analytics for financial securities



Spread options have a payoff determined by the difference between the prices of two assets and a fixed strike price. These options are often used in commodity markets to hedge the spread between two different underlyings such as WTI vs BRENT oil contracts, can be known as Crack Spread options if there were on Oil vs a derived product such as Heating Oil. 

Similarly, for power generators they may use Spark Spread Options to price options that are based on the the various inputs that can be used to create electrictity.

Spread Option Payoff

spread option payoff


S1 = Asset 1

S2 = Asset 2

X = Strike

Spread option valuation

Resolution uses the Kirk (1995) approach to value Spread options. If you'd like to try the Spread Option Calculator in ResolutionPro, click here


The volatility of  can be approximated by


c = Price of European call

p = Price of European put

F1 = Price on futures contract one

F2 = Price on futures contract two

X = Strike price

T = Time to maturity

r = risk free rate

= Volatility of future one

= Volatility of future two

= Correlation between the two contracts

N = The cumulative normal distribution function



For more information see our pricing plans.


Free Trial

ResolutionPro is a derivative pricing library which supports the valuation, risk management and hedge accounting of derivatives & other financial instruments.

You can try ResolutionPro right now on a free trial basis.

Trial Resolution

Most Popular Posts

   Home | Privacy | Search | Site Map | Top