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Change of Numeraire(Margrabe Options)
I have a question with regards to an application of change of numeraire to the Margrabe (Exchange) Option:given the price dynamicswhere W1 and W2 are scalar P-Wiener with local correlation p (rho) and thus the sigmas are scalar constants.How do I prove that the 2 scalar Wiener processes W1(t) and W2(t) can be represented as where Z1(t) and Z2(t) are independent Wiener processes.Any hints and directions are aprreciated. No need for a direct answer.Thanks!
Last edited by islandboy on March 24th, 2007, 11:00 pm, edited 1 time in total.
