A note on a barrier exchange option: The world's simplest option formula?

  • Lindset S
  • Persson S
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Abstract

The paper analyzes a barrier exchange option that is knocked out the first time the two underlying assets have identical market values. Under rather general conditions regarding the price processes for the underlying assets, probably the world's simplest option pricing formula is derived. It applies both to options of American and European type and has implications for credit spreads and for static hedging of barrier options. © 2006 Elsevier Inc. All rights reserved.

Author-supplied keywords

  • Barrier exchange option
  • Credit spreads
  • Static hedging

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Authors

  • Snorre Lindset

  • Svein Arne Persson

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