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Margrabe Revisited

Part of the Fields Institute Communications book series (FIC, volume 74)

Abstract

We introduce a new representation of the bivariate normal distribution to first give a short derivation of the classic Margrabe exchange-option formula, using elementary integration methods. The second application is a new and simple technique to provide an accurate lower bound for the value of a spread option with a nonzero strike.

Keywords

Canonical Formulation Case Type Exchange Option Strike Price Spot Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Notes

Acknowledgements

The simplified proof of the Margrabe formula, using elementary integration techniques, was developed in the context of a course on energy commodities that the author teaches in the Mathematical Finance Program at the University of Toronto. I thank the anonymous referee for comments and suggestions that helped to improve the presentation, and my wife Marguerite Martindale for a professional line edit.

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Mathematical Finance ProgramUniversity of TorontoTorontoCanada

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