Exchange option
= Exchange option
{title2=$(S_1(T)-S_2(T))^+$}
An exchange option permits delivery of one asset in exchange for another at maturity, producing the positive-part payoff $(S_1(T)-S_2(T))^+$. In a complete finite market its price is the discounted <expected value> under the unique <risk-neutral measure>. For a two-period joint binomial model, evaluating this payoff at all four terminal paths and weighting by their risk-neutral path probabilities gives its price directly.