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30. Consider a Margrabe exchange option. Suppose the initial prices of the two stocks are...

30. Consider a Margrabe exchange option. Suppose the initial prices of the two stocks are S1= S2= 100 and = 0.40. Suppose also that the returns on the stocks are uncorrelated. Assume no dividends.

(a) Using the closed-form expressions for the price of these options, identify the price of the exchange option when

(b) Is there a trend in the price? Intuitively, why is this the case?

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Solutions For Problems in Chapter 18
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