American basket options

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.