Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2005/5: A Note on a Barrier Exchange Option: The World’s Simplest Option Formula?

Snorre Lindset () and Svein-Arne Persson ()
Additional contact information
Snorre Lindset: Dept. of Industrial Economics and Technology Management, Norwegian University of Science and Technology (NTNU), Postal: NTNU, Department of Industrial Economics and Technology Management, 7491 Trondheim , Norway
Svein-Arne Persson: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

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.

Keywords: Barrier Exchange Option; Option Pricing

JEL-codes: G10

4 pages, September 12, 2005

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