medium · Quantitative Finance derivatives
Consider an exchange option (Margrabe option) to exchange asset S₂ for asset S₁ at time T. Given σ₁ = 30%, σ₂ = 25%, and correlation ρ = 0.40, calculate the 'spread volatility' hatσ used in the pricing formula.
- 39.05%
- 55.00%
- 27.50%
- 30.41%
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