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Aug 30

European Exchage Options

Posted by abiao at 16:26 | Code » Matlab | Comments(0) | Reads(6987)
Options to exchange one asset for another arise in various contexts. An option to buy yen with Australian dollars is, from the point of view of a US investor, an option to exchange one foreign currency asset for another foreign currency asset. A stock lender offer is an option to exchange shares in one stock for shares in another stock.

Consider a European option to give up an asset worth ST at time T and receive in return an asset worth VT, the payoff from the option is
max(VT-ST,0)
A formula for valuing this option was first produced by Margrabe at his paper “The value of an option to exchange one asset for another”, Journal of Finance, a sample Matlab file can be downloaded here

http://www.global-derivatives.com/code/matlab/EuropeanExchange.m
http://www.global-derivatives.com/index.php?option=com_content&task=view&id=184
wiki(Foreign exchange option)


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