I'm currently studying the pricing of the exchange option.
While I can appreciate the theory, who actually buys these options in practice? Are they standardised and traded on any exchanges (I would guess not)
Who sells these options? My obvious guess is investment banks would tailor this contract for a client if they client wanted a large exposure that somehow reflected the exchange option spread payoff.
But why would someone want to pay a lot of money (presumably the impllied vol would be high) to own this option, when maybe it could be approximated by owning vanilla puts and calls in various combinations instead.
TL;DR nice theoretical formula, but are these options ever traded in practice in any material way, or are they just the tools of academics in ivory towers?
NB: this option is difficult to search for in google ("exchange option" obviously extremely broad, spread option/Margrabe gives so many hits on academic pricing references)