Subject: Spread option code change
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked], [email-masked]
Date: Wed, 3 Jan 2001 07:07:00 -0800 (PST)

Zhiyang and Zhiyun,

Vince told me that London has some trouble to calculate spread option
for correl=1, vol1=vol2.  In such a case, the effective volatility becomes
zero, and the option has zero time value.   

I have modified the UnitCorrPremium() routine to force the code to treat 
this situation as a special case. (It returns the discounted intrinsic value).

Please incorporate this chang to your code so that it will no longer cause 
any 
problems that should not happen in the first place. 

If you have any questions, please let me know.

Zimin

-----------------------

double UnitCorrPremium(
        double s1, 
        double s2, 
        double strike, 
        double r, 
        double q1, 
        double q2,
        double vol1, 
        double vol2, 
              double correl, 
        double tmat, 
        int    opttype
       )
{
 
 double retval;

 if (tmat <= 0.0)
  return intrinsic(s1, s2, strike, opttype);

// look right here for the change, only two lines.

 if ( (1.0-correl)<TINY && fabs(vol1-vol2)<TINY )  // for vol1=vol2, correl=1 
case    
  return intrinsic(s1, s2, strike, opttype)*exp(-r*tmat);

 setup (s1, s2, strike, r, q1, q2, vol1, vol2, correl, tmat);

 if(opttype)
  retval = S.disc*gauherInt(Ffunc0c)/SQRTPI;
 else
  retval = S.disc*gauherInt(Ffunc0p)/SQRTPI;

 return retval;
}