Research On A Basket Of Options Model

Option is a financial derivative, which is established and evolved on the basis of theunderlying asset. Option is an integral part of the market economy，and provides a newway of investment. Option has been widely used in foreign countries, and this year, themajor domestic exchanges also begin the simulation in preparation for the listing ofoptions. With the development of option exchanges, option pricing theory is known as oneof the core problems of modern finance.Basket option is a new option model, which is a combined investment of variousunderlying assets. Different from the single option, it plays the effect of hedging. Basketoption comes out because of the greater demand of investors for the decentralization ofinvestment combination. It provides investors with broad investment space and openinvestment ideas. Thus basket option pricing problem has become the key issue inpractice.This paper aims to study basket option pricing model and the pricing formula understochastic volatility, and simulates basket option pricing with the Monte Carlo model.Through the historical research and example methods, paper will start a preliminary studyon basket option. Firstly, the classical Black-Scholes option pricing model will be studied.On the basis of proving this theory, paper studies how to use Black-Scholes option pricingmodel to solve a variety of assets option problems, so as to obtain the basket optionpricing model and pricing formula. Secondly, the stochastic volatility model is added tothe basket option pricing model, in order to get the basket option pricing formula underthe stochastic volatility. Finally, paper discusses variance reduction techniques of MonteCarlo simulation method, and applies the control variable to the Monte Carlo simulationof basket option pricing.