Suppose the trade is between Index Options of two Indices X and Y which are quite similar (but not exactly).
So for the equivalent strikes, one can quote option on Index X and cover in Index Y.
But these indices will have basis movements. How can one build a trading model to price options in say Index X based on Options of Index Y. How can one manage the risks.
Assumption (Volatility of Both Indices can be assumed to be same). For Simplicity assume, they have equally spaced Strikes.