Spread Option Pricing in Regime-Switching Markets

In this paper we consider the problem of pricing a Spread Option when the underlying assets follow a bivariate Regime-Switching Jump Diffusion model. We exploit the approximation technique proposed in [3] which is based on an univariate Fourier transform representation and we allow a switching market model behavior. The method turns out to be computationally very effective and permits to use several kinds of jump models other than the standard gaussian setting. As a by- product, the exact price of an Exchange Option may be efficiently computed within this framework, thus extending the results in [5].