Margrabe's Option Price

Posted by Chun-Yuan Chiu

Input:
Initial price of the 1st underlying asset
Initial price of the 2nd underlying asset
Annulized volatility of the 1st underlying
Annulized volatility of the 2nd underlying
Dividend yield of the 1st underlying
Dividend yield of the 2nd underlying
Correlation coefficient
Time to maturity Years
Output:
Option value

Derivation:

Derivation of Margrabe's Formula

The price of the option to exchange S2 for S1 at time T, which means the payoff is max(S1(T) - S2(T), 0). S1(t) and S2(t) are the prices of two risky assets modeled by log-normal diffusion processes. The computation is based on Margrabe's formula.

Tagged: Margrabe's formula, Multi-assets options, Foreign exchange, FX

 •  May 30, 2014  • 

Image Gallery

pix pix pix pix pix pix

Why this website?

This website, QuantCalc, offers varied financial math calculators, hedging methods and arbitrage strategies. The reason why we develop QuantCalc is that we hope our ability of pricing, hedging and arbitraging can be seen by World. Please contact us if you want to see some specific method or strategy to be implemented on QuantCalc.

Contact

Please contact us if you have any suggestion.

pai@quantcalc.net

Copyright 2012-2017 Szu-Yu Pai