# Pricing options with 0 or negative underlying values

I am trying to calculate the value of an option whose underlying is the calendar spread between two months for a commodity (front month Brent vs 2nd month), usually known as a calendar spread option.

I am avoiding a CSO model as I do not know where to find implied correlation marks. However, when using the BS model I am running into issues as this spread can be negative when the market is in contango, or zero.

For both of them, you will need to specify a correlation coefficient $$\rho$$. Using BS is not possible, since it does not allow for negative prices, which is possible in spread options. Furthermore, commodity price spreads will be distributed in a significantly non-lognormal fashion, which any BS-type model is not able to capture.