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I would like to calculate a basket European option with Black Scholes local volatility model. I want to simplified the basket option into a single underlying European option. Should we get the local ...
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I'd ideally like to use algorithmic differentiation or finite difference methods to approximate the Greeks of a basket option. It would be a European style basket on $N$ stocks with the payoff being $\... 2answers 166 views ### Do basket options have a closed form valuation formula? Suppose I'm simulating a European call option on a basket consisting of N stocks with slightly varying volatilities but all other parameters remain the same. From the perspective of an estimate, it ... 0answers 46 views ### Estimate of basket volatility We are looking for a simple way to calculate an approximation of the basket volatility for a set of baskets so that we can estimate which basket might produce the highest coupon in a standard ... 1answer 95 views ### Monte carlo delta calculation for Worst/Best Of Option I try to calculate the Delta for WO by finite difference. For example,$K = 1.$$$S_t = S_0 e^{(r - d_1 - \frac{\sigma_1^2}{2})t + \sigma_1 W_t^1}$$ $$F_t = F_0 e^{(r - d_2 - \frac{\sigma_2^2}{... 0answers 53 views ### 0 Delta on Forward starting Equity basket option I wanted to confirm the inherent reasoning behind 0 delta on a weighted equity basket option. For instance, if we have a basket option with a forward starting initial fixing date, we can expect the ... 0answers 65 views ### What is the name of these digital basket options? Consider a basket of correlated assets (S_1(t),\ldots, S_N(t)), as well as a vector of strike prices (K_1,\ldots,K_N), and let's look at the following European payoff types: An option that pays 1€... 1answer 89 views ### Nearly replicate a basket with a few of its constituents Motivation I have a basket with 30 constituents each with a weight which I want to nearly replicate with less than 30 trades for reducing trading costs. Better definition Better replication equals ... 1answer 113 views ### Barrier option on a basket with arbitrary stochastic process Suppose I want to price a Down-and-out European call, barrier option. However, the stochastic process is not a gBm or any other Levy process with known structure. Practically, I want a barrier option ... 0answers 499 views ### Volatility of a stock basket to determine the volatility of a basket of stocks, I often use the following formula: \sigma_{basket}=\sum_{i}\sum_{j}w_i w_j \sigma_i \sigma_j \rho_{ij} where the \sigma are the constituents' ... 0answers 31 views ### Asian basket option variance reduction control variates monte carlo I have priced an Asian put option with three underlying correlated stocks. Now I want to try to reduce the variance using control variates. I have found great ideas when there is one underlying (thus ... 1answer 258 views ### Correlation basket equities One question: when asking for the correlation of a basket, a trader told me 50% whereas I expected him to give me asset pairwise correlations (i.e. the correlation matrix). What does this 50% mean ... 1answer 184 views ### QuantLib: How to change polynomial order in MCAmericanBasketEngine? My goal is to price American basket put options using the Least squares Monte Carlo, or Longstaff-Schwartz algorithm. I currently have the one-dimensional case working with the Python file below (I ... 1answer 368 views ### Software for American basket option pricing using Longstaff-Schwartz/Least Squares Monte Carlo method Is there free software (preferably in Python) that computes American basket (high-dimensional!) option prices in the Black Scholes model using the Longstaff-Schwartz algorithm (also known as Least ... 2answers 574 views ### Difference between Local Vol and Copula Let's assume we have ATM European call on a basket of two stocks and price it with: 1) Multivariate Local Vol with constant correlation 2) Gaussian copula Assuming we use the same correlation ... 1answer 996 views ### Basket Option pricing of two stocks I am trying to use Monte Carlo simulation to price arithmetic basket option consisting of two stocks. There seems to be something wrong in my implementation. According to the inputs ... 2answers 420 views ### Smoothing of the payoff function as a terminal condition for numerical option pricing I am interested in using a 4th order finite difference method in (underlying asset) space to price a European call basket option. I have developed the solver and everything works as expected, except ... 1answer 2k views ### How to price this basket option? Underlying assets are three global stock index : Eurostoxx 50, HSI, KOSPI 200 Maturity: 36 months with advanced redemption date in every 6 months if prices of indexes satisfy given conditions at each ... 3answers 207 views ### Basket derivatives on weather AND financial underlying? Is somebody aware whether there exist basket derivatives whose underlyings are either related to weather (e.g. temperature) or financial indices (e.g. S&P500)? It is essential that the payoff ... 0answers 837 views ### Greeks of a Basket Option I want to estimate delta, vega and gamma for a basket option. This option is a European Call option. The underlying is S=\omega_1 S_1 +\omega_2 S_2 Where: S1 = stock price of asset 1 S2 = ... 1answer 149 views ### Pricing homogeneous Basket Default Swap Consider a basket with K=10 names. Default times of the names, \tau_k, are i.i.d. random variables with distribution P(\tau_k \leq t) = 1 - e^{-\lambda t}. Suppose that each name in the basket ... 0answers 103 views ### Construction of bond portfolio represented by a CDS-Index Markit publishes investable basket CDS indices. These are indices intended to track the credit risk of a basket of issuers (e.g. in the case of iTraxx Europe Series 24 these are 125 names) in an ... 1answer 2k views ### How to calculate implied volatility smile of basket using correlations? For a basket, the realized volatility can be calculated using:$$\sqrt{\sigma_1^2 + \sigma_2^2 + 2 \sigma_1 \sigma_2 \rho}$$If I have the volatility surface of two underlyings S1,S2 (strike space). ... 0answers 97 views ### Basket Default Swap (BDS) I would like to understand better the$n^{th}$to default pair spreads of a basket default swap containing$m>n$entities. For example, consider 2 single name CDS's with same spread and same ... 1answer 263 views ### Finding historical data for indices [duplicate] Where can I find historical data for option prices on a given index ? Ideally I'd like to find for a period of several months 1) historical prices on options on a given index 2) historical prices on ... 2answers 769 views ### Looking for Research Paper on Creation of Currency Baskets I came across a paper, not sure it originated from academia or a blog or such, that reported on applying principal components to build currency baskets from a set of individual currency pairs and to ... 0answers 159 views ### What are the industry standard models for monte carlo simulation of basket options? I would like to simulate an equity index, a risk free cash account and the yield curve for the purposes of valuing a guarantee on an insurance product that is being backed by both equities and cash. ... 0answers 216 views ### Basket option density in BS model Let X and Y be two GBM’s, they have each a univariate log-normal distribution for some time t, that is$X_t\sim{LnN(µ_x, σ^2_x)}$,$Y_t\sim{LnN(µ_y, σ^2_y})$and$Z_t=[X_t,Y_t]\sim{ MvLnN(μ, Σ)}\$ ...
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I am considering a product composed of 10 underlying assets. The maturity is 5 year. Each year if the performance of the equi-weighted portfolio reach a barrier, it pays a coupon. My question concern ...
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### 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, ...
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### Basket option pricing: step by step tutorial for beginners

I would like to learn how to price options written on basket of several underlyings. I've never tried to do it and I would appreciate if you can provide some documents, papers, web sites and so on in ...
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### Taking into account the correlation in Barrier options on a Basket

In a Barrier option (where the contract cancels when the underlying hits the barrier) I succesfully found the way to compute the probability of a single underlying touching the barrier (with constant ...