p option valuation model mark recently reviewing booking p options understanding options valued using standard spread option model price evolution two legs spread assumed correlated geometric brownian motion processes e price process assumptions consistent standard black 76 model assumptions extended two commodities payoff call option payoff max 0 b k nxwti delivery price nymex b posting price wti swap posting basis k posting bonus fixed complication option compared spread options leg b spread combination three prices two futures prices make wti swap given month average posting basis delivery month combination prices easily addressed simply setting volatility leg b correlation correctly account volatility basket prices correlation nxwti price believe approach straightforward alternative would use three four commodity model associated volatility correlation matrices summary believe appropriate model valuation types options assuming inputs set correctly regards stinson gibner v p research