Pricing multiasset equity options: How relevant is the dependence function?

Mascia Bedendo, Francesca Campolongo, Elisabeth Joossens and Francesco Saita

Journal of Banking & Finance, 2010, vol. 34, issue 4, 788-801

Abstract: In this paper we test how different choices for the dependence function can affect the prices of a set of multiasset equity options. We conduct the analysis for various 5-dimensional baskets of UK shares, and a wide range of payoffs for the multiasset options, consistent with the instruments traded on the market. We also test the relevance of the dependence specification over both volatile and quiet market scenarios. Interestingly, we find that, in most circumstances, the choice of a dependence structure richer than the standard linear correlation does not seem to affect option prices substantially. However, the dependence function becomes more relevant in particularly volatile market conditions.

Keywords: Multiasset; equity; options; Copula; functions; Monte; Carlo; simulation; Correlation (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:34:y:2010:i:4:p:788-801

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