Is there any kind of standard method for valuing Heat Rate Call Options? I know there isn't really a standard way to value options in general but I was wondering if there is something similar to Black-Scholes but for HRCOs. How should you think of HRCOs when coming up with a value? Are they best modeled as a multi-asset Asian option? Are they most similar to an exchange option? I can estimate an intrinsic value from historical settles but extrinsic seems harder to come by. I can look at exchange traded options for each leg (power and gas) but that doesn't really incorporate the multi-strike feature of a HRCO where I can strike on a day ahead basis, every day, for several months or years. What are some methods to come up with a fair value for these products?
I'm new to HRCOs so let me know if I need to elaborate on my question.
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