Salmon, Mark H. (Mark Howard), 1949- and Schleicher, Christoph (2006) Pricing multivariate currency options with copulas. Working Paper. Warwick Business School, Financial Econometrics Research Centre, Coventry.

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Abstract

Multivariate options are widely used when there is a need to hedge against a number of risks simultaneously; such as when there is an exposure to several currencies or the need to provide cover against an index such as the FTSE100, or indeed any portfolio of assets. In the case of a basket option the payoff depends on the value of the entire portfolio or basket of assets where the basket is some weighted average of the underlying assets. The principal reason for using basket options is that they are cheaper to use for portfolio insurance than a corresponding portfolio of plain vanilla options on the individual assets. This cost saving depends on the correlation structure between the assets; the lower the correlation between currency pairs in a currency portfolio for instance, the greater the cost saving.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	FTSE International, Portfolio management, Investment analysis, Risk assessment, Foreign exchange
Series Name:	Working papers (Warwick Business School. Financial Econometrics Research Centre)
Publisher:	Warwick Business School, Financial Econometrics Research Centre
Place of Publication:	Coventry
Date:	2006
Number:	No.06-
Number of Pages:	21
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/1747

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