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We are looking for a simple way to calculate an approximation of the basket volatility for a set of baskets so that we can estimate which basket might produce the highest coupon in a standard Autocall product. We are aware that there are many other factors that may affect the coupon but are happy to have a simplistic approach in order to reduce the original potential set of baskets to a more manageable set which we can then price using MC.

Any help appreciated

Regards

Steve

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  • $\begingroup$ Can you write the payoff / describe it, and also tell us what is meant by a 'basket', and 'basket volatility'? $\endgroup$ – Arshdeep Singh Duggal Jul 13 at 18:04
  • $\begingroup$ Is the basket the average of the underlyings? Is it the Worst of the underlyings? Is it a Rainbow basket? What do the forwards of the underlyings look like? There are several types of basket and other factors that go into this, and also several kinds of autocall, so as @ArshdeepSinghDuggal mentions, we need a bit more information. $\endgroup$ – will Jul 14 at 21:48

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