Valuation of Options and Bond Spreads Involving Two Currencies
European options on bond price spreads, on bon yield spreads and on bond futures and forward price spreads are evaluated when the two underlying bonds involved in the spread are denominated in two different currencies. In an international economy a la Amin and Jarrow (1991), foreign and domestic interest rates obey the stochastic processes postulated by Heath, Jarrow and Mortion (1992) in which the volatility of forward rates is deterministic but otherwise arbitrary.
MELLIOS, C. et PONCET, P. (2001). Valuation of Options and Bond Spreads Involving Two Currencies. Finance, pp. 75-100.