Black basket analytics for mid-curves and spread options

A new solution to calibrate derivatives with multiple strikes is proposed


Alexandre Antonov proposes a new way to unify two marginal distributions with a large number of parameters, permitting mid-curve or spread options with multiple strikes to be calibrated. The method is based on a basket of lognormal processes (called a Black basket) having a fast analytical formulation and attractive simplicity. Moreover, the application of the Black basket method can be extended to full term structure models: Black basket LMM

Mid-curve and spread

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