Margrabe (1978) studied the problem of the valuation of the option of exchanging one risky asset for another. One interesting feature of the valuation formula that he obtained was that the value of the option was independent of the risk-free rate of interest. In this article we extend Margrabe's result to include assets that pay a dividend yield, and commodities (both commercial and precious). In all cases the initial result holds: the exchange option is independent of the risk-free rate of interest.
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