This paper describes and analyses the use of the Filtered Historical Simulation algorithm in pricing spread options. Spread options are contracts whose payoff depends on the price difference (spread) between two or more underlying assets at a future date. Such kind of options are written in the...

The main problem in the combination of volatility forecasts is that the volatility cannot be directly observed and hence loss functions such as the MSFE cannot be directly used unless a suitable proxy of the conditional variance is defined. A common approach is to use the squared returns but...