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Questions tagged [margrabes-formula]

Margrabe's formula prices an option to exchange one risky asset for another risky asset (an exchange option).

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Value of an option to exchange an asset for another

I'm working out the examples in the paper "Changes of Numeraire, Changes of Probability Measure and Option Pricing", corollary 3. An option of exchanging asset 2 against asset 1 at time T, its time-0 ...
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Changing numeraire in Margrabes formula

Consider a Black Scholes market with constant coefficients, a bond and two risky assets: $$dB_{t}=r B_{t}dt \\ dS_{t}^{i}=S_{t}^{i}(b_{i}dt+\sigma_{i,1}dW_{t}^{1}+\sigma_{i,2}dW_{t}^{2})$$ where $i=1,...
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Continuous flows Perpetual maturity cap on Exchange Options PDE Change of variable

Im trying to do a change of variable on the following PDE Using the following change of variable $$ V(P^1,P^2) = P^2 W(C), C=\frac{P^1}{P^2} $$ I get this for the homogeneous part of the equation: ...
f4bby's user avatar
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