Margrabeʹs option to exchange in a paretian-stable subordinated market

This paper derives the formula for a European option to exchange one asset for another provided that the underlying asset price is logstable. Using the subordination principle of Feller [1] first applied by Hurst, Platen and Rachev [2] to option pricing, we can extend former results of Margrabe [3] to a richer class of stochastic processes which are able to better capture empirical asset return distributions. The obtained option price can be used as a building block in the context of real option valuation.