Re: Multi-asset options

Posted by Luigi Ballabio-2 on
URL: http://quantlib.414.s1.nabble.com/Multi-asset-options-tp2771p2774.html

On 2004.01.21 14:46, Neil P Firth wrote:

>>>I'm looking at coding up some multi-asset options [...]
>
> I'm thinking of weigthed baskets, with payoffs such as:
>
> \Sum_{i=0}^{n} w_i S_i - K
>
> or
>
> \max(S_1, S_2, S_3) - K
>
> or
>
> \min(S_1, S_2, S_3) - K
>
> You can have a call or a put. Some code is required to define and
> calculate the sum, max, or min at the expiry time. As the current
> Payoff only allows (double price) this would have to be calculated  
> elsewhere.
> I'm thinking of having a BasketOption which is created using a Payoff  
> and a BasketPayoff which calls the Payoff object.
>
> To calculate the payoff you would call
>
> double finalOptionValue = payoff(basketPayoff(assetPriceVector));

Neil,
        while I'm not yet extremely familiar with what Nando had in  
mind, I think this is the right way to go. One would do the same with  
e.g. Asian options, where the value on a realized path could be written

    double value = payoff(average(fixings));

and the payoff would be described a simple Call/Put with strike k.
Nando, can you comment on this?

Later,
        Luigi