[R-SIG-Finance] American basket options

[Moshe Olshansky]

This is an OTC traded option.

For a European option one can estimate the covariance
matrix and then use Monte Carlo (taking into account
the dividends for each stock). This is pretty
straightforward (well, there may be many ways to
estimate the covariance matrix but let's use the
simplest one).

Regards,

Moshe.

--- Krishna Kumar <kriskumar at earthlink.net> wrote:

> I am just curious as to if this is being traded in
> some market ?.
> 
> This is probably not very helpful but I don't think
> a European style 
> basket is there in the existing packages. European
> style baskets are 
> themselves tricky if you want to get the basket
> smile right etc. 
> American style baskets will be messy.
> 
> Cheers
> Krishna
> 
> 
> 
> 
> Moshe Olshansky wrote:
> > Hello,
> >
> > Is there any R code which allows to calculate the
> > price of an American basket option (option on a
> price
> > of a portfolio)? 
> > If yes, are there any references to how accurate
> these
> > calculations are? 
> > If no, can anybody recommend a relatively easy to
> use
> > software doing this?
> >
> > Are there any non Monte Carlo methods to compute
> (even
> > roughly) the price on an American basket put
> option on
> > a portfolio of 10 dividend paying stocks with 6
> months
> > maturity?
> >
> > Thank you in advance,
> >
> > Moshe.
> >
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