The exchange option has terminal payoffs determined by the two successive up/down moves:
(1)
The two stocks span both one-step states, so this finite market is complete. The risk-neutral pricing uses the independent transition probabilities and . Since the synthetic risk-free rate is zero,
(2)
The price is approximately 7.56 in the currency units of the stock prices.

Ancestors (12)

  1. 6
  2. B
  3. 2009
  4. Past exam of the martingales and financial mathematics course of the University of Oxford
  5. Martingales and financial mathematics course of the University of Oxford
  6. Year 3 of the mathematics course of the University of Oxford
  7. Mathematics course of the University of Oxford
  8. Undergraduate course of the University of Oxford
  9. Course of the University of Oxford
  10. University of Oxford
  11. List of universities
  12. Home

View article source

Discussion (0) New discussion

There are no discussions about this article yet.

Articles by others on the same topic (0)

There are currently no matching articles.
See all articles in the same topic Create my own version