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Margrabe Option


A futures contract which entails the exchange of one asset for another (such as cross currency options). Essentially, this option represents a spread option with a strike price equal to zero. A spread option is an option whose underlying is a spread such as a price spread, credit spread, calendar spread, etc.

The Margrabe option was Invented in 1978 by the US risk-management consultant William Margrabe who also devised a formula for determining its price.

It is also called an exchangeable option, an exchange option or an outperformance option.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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