# what is the implied volatility on a basket of options

If I have 4 optionable stocks A,B,C,D and each different implied volatilies,IV-A,IV-B,IV-C,IV-D. How do get the implied volatility for a basket option on A,B,C,D where the basket weights are w-A=.6, w-B=.3, w-C=.09,w-D=.01 ?

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I think the better question is : How to extract the basket implied volatility surface? Below a paper I find very easy to comprehend and useful to start with. – Matt Wolf Dec 21 '12 at 6:11

Implicit in those well-chosen PDFs is the point that cointegration matters a lot for baskets. That is to say, the volatility of a basket cannot be inferred from the dynamics of its components alone. The very minimum you can work with is a set of volatilities and a "constant" correlation matrix with the same value $\rho$ for all off-diagonal elements. But the PDFs are more advanced. – Brian B Dec 22 '12 at 20:36